Corporate Growth Conference 2024: Waste sector enjoys a 'golden age' of infrastructure

The waste management industry is in a golden age of infrastructure, according to Adi Blum, managing director at New York-based investment company BlackRock, who spoke during an Infrastructure Funds panel discussion at this year’s Corporate Growth Conference, held Nov. 20-21 in Chicago.

Moderated by John McNamara, managing director at St. Louis-based investment bank Stifel, the discussion brought together directors at a number of investment firms to discuss increased interest and investment from infrastructure funds, mutual funds that focus on investing in infrastructure-related businesses.

The definition of infrastructure is changing, McNamara said. Historically, infrastructure has encompassed things such as toll roads, airports, buildings and power supply. In recent years, the waste sector has joined that list, and as an essential service with substantial free cash flow conversion and, in many cases, regulatory and sustainability growth drivers, it’s an attractive addition, he said.

Infrastructure investment is one of the few areas of government spending that garners bipartisan support, and infrastructure funding is on the rise and continuing to increase, McNamara said. Infrastructure funds are sitting on record levels of capital to deploy, and they can afford to pay more for assets that meet the right assets and criteria, he added.

At H.I.G. Capital, a New York-based investment firm, investors added a dedicated infrastructure fund to look at investments with an infrastructure lens, said H.I.G. managing director Miriam Rafiqi.

“It’s a pretty unique area to invest in,” Rafiqi said. “It’s an interesting and high-growth space to invest in.”

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Waste infrastructure has a lot of characteristics that make it a great investment, Blum said. He considers waste to be a utility, and its visibility, demand and recession-resiliency can create attractive cash flow.

When considering a new investment in the waste sector, Trevor Russo, director at London-based private equity firm 3i Group, takes into account the usual factors such as quality of earnings, tax due diligence, environmental and legal concerns, but also puts a heavy emphasis on postcollection assets. He said he spends a lot of time evaluating the competitive environment and the “moat” protecting those assets.

“At the of the day, it’s all about, is the earnings power of the business what we think it is?” Russo said. “Are the cash flows stable and recurring? We’re just focusing on making sure that downside protection is there and you have a healthy mix of assets and can you execute on the plan.”

Infrastructure has evolved past investing in traditional ports and airports, as more and more capital is raised, infrastructure investors are competing against traditional private equity for waste services assets, McNamara said.

In infrastructure investment, as in other areas, it’s critical to have an “angle,” Rafiqi said.

“It’s about picking and choosing your spots and knowing where you have an angle and where you can be competitive,” she said.

Stephen Janos, an associate director at Australia-based financial services company Macquarie Group, said he has noticed a shift toward sustainability over the last decade in recent acquisitions, especially in the areas of recycling diversion and beneficial reuse.

Russo added that the waste sector offers natural, economically driven opportunities for sustainability, such as landfill gas-to-energy projects, that also increase the bottom line.

“We’re going to sell that gas, we have an agreement to sell that gas, we’re going to make money off of the gas,” Russo said. “It’s the same thing with recycling. We’re going to do recycling when you’re getting paid to collect it at the curb, you’re diverting it, so you’re saving space it the landfill, and then you’re selling the commodity.”

Looking to the future, Rafiqi said she expects to see an increase in infrastructure offerings, and more and more product offerings within the infrastructure category. Russo agreed, saying he expects to see the amount of capital available for infrastructure funds to increase.

“Funds are going to look for new ways to deploy that capital, and look for new, adjacent verticals and sector they could quality as infrastructure to do that,” he said, pointing to specialty waste, electric charging, battery storage as opening up new asset class categories.

Janos concurred, saying the upward trajectory in infrastructure investment will likely continue in the next five years as new investors come in.

Blum added that as deficits continue to grow, governments won’t have the necessary capital to invest in upgrading aging infrastructure.  

“Private infrastructure funds are going continue to grow in size as pensions look for safe places to park money for a long period of time and a nice returning, high-yielding investment opportunity. But at the same time, there will be a tremendous need to deploy infrastructure capital,” Blum said. “I’m incredibly bullish on the waste sector and all the infrastructure world is going to continue to do here.”