Investment firm Highstar Capital has jumped into the Top Ten of North American waste and recycling firms with the purchase of Veolia’s U.S. solid waste operations.
The long-anticipated sale creates the largest privately held waste and recycling business in the United States, with estimated revenues of $1.4 billion. That would place the New York-based Highstar at No. 8 on the Waste Age 100 list of largest industry companies.
And at least one industry analyst says Highstar might be looking to go public in the next year.
Chicago-based Veolia Environmental Services North America Corp. (VESNA) agreed to sell its U.S. solid waste operations to Star Atlantic Waste Holdings LP, a Highstar unit, for $1.91 billion.
The sale of Veolia ES Solid Waste Inc. is subject to antitrust approval in the United States and is expected to be complete by the end of the year.
Highstar also owns Jacksonville, Fla.-based Advanced Disposal Services Inc. and Interstate Waste Services Inc. of Basking Ridge, N.J. Richard Burke, president and CEO of VESNA, said a VESNA news release that at closing Veolia operations will be combined with Advanced Disposal and Interstate Waste to form one company, operating as Advanced Disposal Services. The business will include 47 landfills, 92 transfer stations, more than 3,000 trucks and 5,450 employees serving 20 states. “Our solid waste business is self-sustaining, profitable and highly marketable,” Burke said.
Christopher Lee, Highstar Capital founder and managing partner, said in a news release that the acquisition “is a unique opportunity to create a fully-integrated environmental services platform across the eastern United States. The combined business will be a best-in-class company with an exceptional management team and growth opportunities.”
The sale does not affect VESNA’s two other U.S. business units, Veolia ES Technical Solutions and Veolia ES Industrial Services. VESNA also keeps its Canadian solid waste business, VESNA said.
In addition to the possibility of Highstar eventually going public, the purchase might also unleash some more acquisitions pent up waiting to see what happened with VESNA, says Michael Hoffman, director of research with the Memphis, Tenn.-based Wunderlich Securities Inc., in an interview.
He says the New York-based Highstar eventually should consider what he calls an “exit strategy” with the purchase. If it were ultimately sold again, the only possible buyers would be The Woodlands, Texas-based Waste Connections Inc. and the Vaughan, Ontario-based Progressive Waste Solutions Ltd., and he called that “pretty remote.”
But going public is another matter. “If you put all this together and have an eye toward the public market, then you have to be a really disciplined player in the game,” he says. “You can’t be rash on price cutting to get share, you want to be disciplined about tuck-ins (smaller acquisitions). What you want is for the public perception of the garbage industry to get better and the valuations to improve.” And another big but disciplined player benefits the industry. “It helps bring incremental discipline to the marketplace,” he says.
Hoffman said he believes that Advanced Disposal CEO Charlie Appleby may end up running the Veolia business as well, along with Interstate Waste. “He’s a very good operator, so it makes a lot of sense.”
On timing for going public, Hoffman says even with low growth in the economy and the presidential election, the business environment should become stable enough and valuations should improve enough that it might make sense to access the public market in the second half of 2013.
With the Veolia deal done Waste Connections might be ready to resume making acquisitions, and other sellers that have waited on the sidelines might emerge. But Hoffman cautioned sellers from getting too excited about what appears to be a high selling multiple of 8.3 on the Veolia deal.
First, it might not be as generous as it appears because of fees and charges, and the nature of this being an integrated deal. And it may even slow down acquisitions if sellers look to get what they believe Veolia got and the buyers, particularly the big companies, remain disciplined and don’t chase bids.
With the Veolia deal Hoffman doesn’t see a lot of potential for immediate divestments.