Capstone Partners sees M&A momentum returning

Boston-based middle market investment banking firm Capstone Partners says demand for efficient and environmentally friendly waste management and recycling solutions has elevated, prompting a potential rebound in merger and acquisition (M&A) activity in the sector.

In its October "Waste & Recycling Market Update," Capstone says the global municipal solid waste (MSW) volume is expected to grow to 3.4 billion tons by 2050, citing a World Bank forecast.

“Sector participants are expected to pursue acquisitions to scale operations to accommodate increased waste volume,” Capstone says.

The investment banks also cites continued pressure from environmental protection groups and the United States populous as factors expected to emphasize the value of recycling facilities and product manufacturing in the near term.

M&A activity in the waste and recycling sector has sharply declined year-to-date, with 141 transactions announced or completed, compared with 222 in the same timeframe in 2022, which was a record year, according to Capstone.

“While deal volume has slowed, sector leaders have pursued target companies with desirable geographic locations and proven cash flows,” Capstone says.

Regarding the current climate, Capstone has identified recycling infrastructure, such as sorting technology deployed at material recovery facilities, as a growing factor in some M&A activity. “Specifically, firms that offer innovations in recycling techniques and processes have garnered increased attention from companies looking to reduce their overall footprint on the environment,” Capstone says.

The investment bank characterizes “strategic buyers” as having maintained interest in the recycling space this year, with such transactions representing nearly half (49.6 percent) of waste sector deals this year.

“Demand for waste management and recycling capabilities and capacity will remain a key driver for M&A activity," says Doug Usifer, managing director at Capstone. "Companies that have robust volumes coupled with high efficiencies and technology solutions in sorting, handling and purification/recovery will be among the most sought-after targets.”

The full report, which also covers recent M&A and divestiture activity by Canada-based GFL Environmental, can be accessed here.