Sep 24, 2020

Waste Management Industry Proves Resilient During COVID-19 P

Bizclik Editor
8 min

NEW YORK, Sept. 24, 2020 /PRNewswire/ -- Despite a reduction in waste volumes during the COVID-19 pandemic, the waste management industry has proven strong, with increasingly agile companies operating in what has historically been a resilient business, according to the Environmental Services banking team at Mitsubishi UFJ Financial Group (MUFG).

The team issued its perspectives as part of the dialogue surrounding Climate Week NYC—an annual summit on environmental and policy issues taking place this week across New York City and around the world—and includes Managing Director Robert Jones, Director Maria Maia and Vice President Fabio Lauro, who serve the bank's environmental-services clients.

Waste reduction amid the pandemic
"In the latter part of the first quarter and in the second quarter of 2020, most waste services companies experienced a reduction in waste volumes across sectors because of the COVID-19 pandemic," said Ms. Maia, referring to companies that collect, process, dispose of and recycle waste. "Commercial volumes declined the most—roughly by 15 to 25 percent for some companies—because of widespread closures of offices, shopping malls, restaurants and other business establishments."

She added that waste volumes from construction and demolition—which tend to be susceptible to economic slowdowns affecting housing and construction at large—also declined, albeit to a lesser extent, as many construction projects continued throughout the government-imposed lockdown.

"Residential waste volumes have actually increased because of the larger population of people working from home," Ms. Maia said. "However, since the pricing of residential waste collections is generally based on volume—not weight—few waste services companies were able to pass on higher residential pricing in the second quarter." Weight-based fees, in contrast, are paid by commercial customers and are more easily adjusted to cover increases in processing and disposal costs.

The waste management industry's resilience
Notwithstanding the overall decline in waste volumes, Ms. Maia noted the financial resilience of the waste management industry—particularly in the traditional solid-waste category—as one that is able to generate recurring revenues anchored by long-term municipal and commercial contracts.

"Despite the pandemic, the industry was able to maintain consistently strong cash flows, service its debt, and provide returns to shareholders," she said. "This is an industry that enjoys a number of secular advantages including high barriers to entry created by regulatory requirements, the ability to pass on price adjustments, the flexibility to modulate capital expenditures to meet demand, and the efficiencies of vertical integration."

Environmental initiatives and technology
Mr. Jones singled out two salient themes occurring in environmental services:

1.    Environmental initiatives: "The waste management industry is serving an instrumental role on the front lines of environmental stewardship, supporting broader sustainability goals in the United States," Mr. Jones said.

He cited three examples of this role: (a) landfill gas-to-energy projects, in which waste services companies capture methane in landfills to reduce greenhouse gas emissions—and then use it as a renewable energy source, often to fuel the very vehicles that bring waste to the landfills for disposal in the first place; (b) investments in so-called "next-generation recycling facilities," whose purpose is to increase the recovery rates of disposed materials while improving the quality of the material recovered, promoting safety, and driving efficiency; and (c) efforts on the part of waste-management companies to partner with their customers and help them meet sustainability goals.

2.    Technology: Mr. Jones mentioned technology as playing a larger part in the industry to enhance operational efficiencies, reduce costs and strengthen competitiveness. "Examples include new technologies that improve route planning for waste-collection vehicles, modernize the vehicles themselves, and enable sophisticated maintenance programs and data tracking of key operating metrics," he said. "There are also advancements in customer service, which is being delivered increasingly through web-based and mobile applications that provide timely updates and a better user experience."

Consolidation drivers
Mr. Lauro noted that the U.S. waste management industry is highly fragmented, ripe for continued consolidation and attracting investors, including private equity sponsors.

"A large portion of the industry's revenue today is concentrated among the four largest public waste services companies, while the remainder of the industry is fragmented among thousands of companies that are identified as solid-waste collection and disposal businesses," he said. "Consolidation activity—especially among the large players—has been accelerating in deal volume and transaction amount over the past 3-4 years."

Mr. Lauro noted the economies of scale that merger-and-acquisition (M&A) transactions in the waste management industry can reap in terms of labor productivity, asset utilization, and the financial resourcefulness to acquire better and more modern equipment. He pointed to four factors motivating small waste services companies to sell to larger businesses, thus fueling industry consolidation:

  • Lack of succession: "Many owners of family-run businesses are nearing retirement age and do not have succession plans in place," Mr. Lauro said. "Additionally, newer generations of likely successors, such as immediate family members, have opted not to carry on the family business."
  • Increase in equipment and technology investments: According to Mr. Lauro, new regulations and requirements from municipalities are mandating the use of waste transfer and disposal vehicles with lower carbon emissions, as well as the use of high-tech recycling equipment to meet municipal and state sustainability goals. These required investments are pressuring smaller businesses with limited financial resources.
  • Rising landfill and disposal costs: Shrinking landfill capacity in many U.S. states, especially in the Northeast, is causing disposal costs to rise—a trend Mr. Lauro said will continue as additional landfills close. Waste services companies that do not own landfills may be more exposed to inflationary pressures on the disposal front than other companies that own landfill assets, he said. 
  • The advantage of lower current taxation: Some company owners have decided to accelerate efforts to sell their business to take advantage of current favorable tax laws, according to Mr. Lauro.

Private equity opportunities
"The waste management industry has been an attractive area for private equity investments for many years," Mr. Lauro said, noting that waste businesses can support greater levels of leverage because they are less vulnerable to recessions. "Private equity is being deployed toward a wide range of companies—from start-ups to multi-billion-dollar businesses—and being driven by the industry's consolidation trend and growth outlook."  

Mr. Lauro pointed out that private equity firms can create meaningful value in various ways via M&A, including opportunities to scale up a regional platform through bolt-on acquisitions, or alternatively create a platform by combining smaller local operators. "Either way, they are finding opportunities to harness economies of scale and build businesses with regional reach to create value," he said.

Mr. Lauro noted that valuations for acquired companies with regional scale, strong free cash flows, healthy EBITDA margins, and vertical integration models (i.e., the possession of both collection and disposal assets) have tended to trade at a premium, with EBITDA multiples in the high single- to low double-digit range. "Small 'bolt-on' acquisitions may carry lower EBITDA multiples in the mid-single digits, but they can be highly accretive in adding value and efficiencies," he said. "The 'exit' market for those looking to sell their waste businesses has also been supported by a range of interested acquirers from a strategic and financial perspective."

MUFG is one of the world's largest financial institutions by assets, with approximately $3.2 trillion.1

About MUFG's Environmental Services banking team in the Americas
Established more than two decades ago, the Environmental Services banking team at MUFG in the Americas provides a full suite of banking products and services—and access to a broad range of financing and capital markets expertise—for companies whose mission is the responsible collection, processing, recycling and disposal of waste. These include companies that deal with traditional solid waste, as well as specialty niches such as medical waste, liquid and hazardous materials, and related industrial services.

About MUFG Americas
The U.S. operations of Mitsubishi UFJ Financial Group, Inc. (MUFG), one of the world's leading financial groups, has total assets of $379 billion at June 30, 2020. As part of that total, MUFG Americas Holdings Corporation (MUAH), a financial holding company, bank holding company, and intermediate holding company, has total assets of $167.4 billion at June 30, 2020. MUAH's main subsidiaries are MUFG Union Bank, N.A. and MUFG Securities Americas Inc. MUFG Union Bank, N.A. provides a wide range of financial services to consumers, small businesses, middle-market companies, and major corporations. As of June 30, 2020, MUFG Union Bank, N.A. operated 348 branches, consisting primarily of retail banking branches in the West Coast states, along with commercial branches in Texas, Illinois, New York, and Georgia. MUFG Securities Americas Inc. is a registered securities broker-dealer which engages in capital markets origination transactions, domestic and foreign debt and equities securities transactions, private placements, collateralized financings, and securities borrowing and lending transactions. MUAH is owned by MUFG Bank, Ltd. and Mitsubishi UFJ Financial Group, Inc. MUFG Bank, Ltd., a wholly owned subsidiary of Mitsubishi UFJ Financial Group, Inc., has offices in Argentina, Brazil, Chile, Colombia, Peru, Mexico, and Canada. Visit or for more information.

About MUFG
Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world's leading financial groups. Headquartered in Tokyo and with more than 360 years of history, MUFG has a global network with over 2,700 locations in more than 50 countries. The Group has over 180,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to "be the world's most trusted financial group" through close collaboration among our operating companies and flexibly respond to all of the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG's shares trade on the Tokyo, Nagoya, and New York stock exchanges. For more information, visit

1 As of June 30, 2020, and according to the USD/JPY exchange rate at that date of 1 USD= ¥107.7 trillion (JPY)

Press contact:
Assaf Kedem
Direct: 212-782-4926
[email protected]

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