The big idea behind the merger of unlikely bedfellows.

August 1, 2011

3 Min Read
Raked Up: Analysis of Waste Management's Purchase of Oakleaf Holdings

By Michael Fickes, Contributing Writer

In a whirlwind 24 hours, Houston-based Waste Management Inc. offered $425 million to buy Hartford, Conn.-based Oakleaf Global Holdings, got a “yes” and closed the deal. The companies announced the acquisition on July 28.

While the ultimate price remains subject to adjustments related to working capital and other issues, Waste Management now owns a waste hauling broker with 650-employees, a North American network of 2,500 preferred hauling, recycling and waste diversion experts and about $580 million in new revenues.

Though the deal surprised many industry observers, the idea had at least been broached. “We’re a relatively large player in the industry, and we’ve talked about this with Waste Management before,” says Steve Preston, Oakleaf’s president and CEO.

Still, Oakleaf is a broker, an aspect of the industry not frequently associated with Waste Management. Waste Management President and CEO David P. Steiner takes issue with that oversight. “We have an $800 million national accounts group that bids on and manages accounts with locations across the country. We try to use our own offices, but the bidding and management work is the same thing that Oakleaf does. If we don’t have an office in some of those locations, we broker that part of the business, just like Oakleaf.”

Steiner and Preston insist the deal is a good fit, if you read between the lines. And both executives say that Oakleaf’s customers and vendors are on board with the idea.

That customers would like the idea is easy to understand. They will have access to a lengthy menu of new services courtesy of Waste Management, the nation’s largest waste services provider. But aren’t Oakleaf’s vendors afraid of losing their assignments to Waste Management trucks?

“We have an aggressive outreach message for our vendor network,” says Preston. “It is a message the vendors may not expect: Waste management wants to be your partner going forward.”

“Our guidance to investors assumes that we will put Oakleaf’s collection tonnage on our trucks,” says Steiner. “We estimate that will add $80 million to EBITDA [earnings, before interest, taxes, depreciation and amortization]. But this is the worst-case scenario. I think we have a much bigger opportunity.”

Steiner wants Oakleaf haulers keep their Oakleaf business and use Waste Management as their landfill and recycling services provider for collection tonnage from Oakleaf plus all of their other accounts. “At first, I assumed we would take the collection work,” he says. “But if you think it through, the other option is much better for us and for the vendors.”

Oakleaf network haulers only generate a part of their revenues from Oakleaf business, observes Steiner. It might be 5 percent of their total collection revenues, or it might be 50. Steiner says taking that business could be counterproductive. Why not help Oakleaf haulers make more money? Why not make competitively priced landfill and material recovery facility services available to Oakleaf haulers?

What does a $1 million hauling company pay to landfill and recycle $1 million worth of collection tonnage? It has to be a lot more than the 10 percent or so of revenues generated by Oakleaf customers, Steiner reasons.

One choice, then, is to take a small percentage of that collection tonnage and generate revenue from hauling, landfilling and recycling it.

The second choice, the one Steiner prefers, is to sell landfill and recycling services to Oakleaf’s network of 2,500 vendors, thus generating revenue from the Oakleaf tonnage plus tonnage from all of their other accounts.

What if some of those vendors subsequently decide to offer newly available Waste Management services to their customers, like hazardous household waste disposal, composting or electronics recycling?  It’s easy to see the promise Steiner envisions.

None of this will work, however, if Waste Management takes over collections for Oakleaf customers and breaks the existing connection with the vendor network.

That’s the big idea behind Waste Management’s acquisition of Oakleaf.

Michael Fickes, Contributing Writer

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