Capital Markets Conference: Putting a value on companies

Pictured above: Effram Kaplan of Brown Gibbons Lang & Co.

With an active merger and acquisition (M&A) environment in the solid waste and recycling sectors, methods have evolved to determine the value of waste and recycling companies, according to presenters at the inaugural Capital Markets Conference. The 2018 version of the Waste Today event was held in Chicago Oct. 17-18, 2018.

Attendees of the conference, which brought together financial firms to discuss the financial opportunities and growth prospects possible in the waste and recycling industry via a series of presentations and panel discussions.

Effram Kaplan, managing director and a principal with the Cleveland-based private investment bank Brown Gibbons Lang & Co., said while there is some overhang in the waste market at the present time, valuations of companies in the environmental services field are “not out of whack.” He did say, however, that price-to-earnings (PE) ratios are starting to push valuations up. Kaplan said that while the industry held some opportunities, challenges abounded in the sector.

Kaplan remarked that while a handful of large, publicly traded companies such as Waste Management Inc. and Republic Services have consolidated large parts of the municipal and commercial solid waste industries, other sectors, such as those targeting specialty wastes, are still fragmented. Kaplan also said there are “tailwinds” that could boost companies in these sectors.

Daniel Butturini, a principal with New Jersey-based Sterner Consulting, touched on factors finance firms need to consider before investing in sectors within the waste and recycling industry. This includes examining the landfill permit capacity a company might have; the types of waste streams being handled by the company; what type of operations (material recovery facilities; construction and demolition processing; waste transfer stations, etc.); capacity utilization of the facilities being researched; and whether facilities are rail served.

Butturini pointed to other variables that could affect a facility’s valuation, including:

• tonnage handled; a larger volume can increase the asset value to the upper end of the valuation range;
• profitability more than industry norms may increase earnings before interest, tax, depreciation and amortization (EBITDA) multiples;
• revenue under a long-term contract (three to five years) will increase the value of the company;
• downstream maintenance and infrastructure capital expenditures are a factor in overall valuation; and
• companies that are vertically integrated will tend to fall on the upper end of the valuation ranges and may carry a higher value beyond its subsidiary operations.

Butturini issued a caution in the near-term about recycling companies, saying, “We believe that active recycling operations can be a detraction from the overall value of an integrated solid waste business due to the perception in public and industry media, the frequent stories about the cost of collected and/or processed recyclable material being approved by oversight agencies for landfill or waste-to-energy disposal, the current market constrictions brought on by a dramatic reduction in the longstanding marketplace’s clients, export pricing and limited destinations.”

He added, however, “This condition will likely improve as the ‘new normal’ works its way through the national and international marketplaces and as the commodity resale markets stabilize.”

The 2018 Capital Markets Conference, organized by Waste Today Events, was Oct. 17-18 at the Marriott Magnificent Mile in Chicago.