The solid waste management market is growing faster than it was five years ago, said Effram Kaplan, managing director at Cleveland-based Brown, Gibbons, Lang & Co. While the growth is a positive sign, it means that it can necessitate more of a balancing act when valuing businesses in the sector.
At Waste Today’s Corporate Growth Conference, which was Nov. 4 in Chicago, Kaplan discussed the tailwinds and capital market drivers impacting the environmental services market.
Kaplan said there is a valuation disconnect between public solid waste, environmental services and special waste businesses. Because of this, some transactions have been indicative of opportunities for investors.
“There is no doubt there is a difference in public markets to think about where solid waste, environmental services and special waste is traded from a valuation perspective,” Kaplan said.
According to the Environmental Business Journal, the solid waste market is heavily consolidated, with a total market size of $76 billion. The public sector makes up 59.6 percent of this market, while the private sector makes up 21.7 percent, and government waste services represent 18.8 percent.
Several things are contributing to the growth of the market overall, Kaplan said. He noted that things like the rise and flexibility of available financing products, the flood of capital into private markets and enhanced specialization have all played a role in driving the market forward.
“I’ve never seen landfill values be as attractive as they are today,” Kaplan said. “Landfills are not going away. The population is growing, and there is a need to put the waste somewhere. Yes, there is anaerobic digestion; yes, there are material recovery facilities; yes, there are alternative ways to process waste; but what you see is [companies working to preserve and create landfill space].”
Another factor driving growth is that the environmental services and specialty waste management markets are widely unconsolidated. These markets, which Kaplan estimated to be worth $54 billion, are notably fragmented—no company owns more than 5 percent of the workforce.
Kaplan said that regulation and government intervention is getting more prevalent in the environmental services and waste market, noting that companies like Waste Management, Republic Services and GFL have all had to divest some of their assets after recent acquisitions in the market.
Kaplan also said new regulations will play a role in how businesses in the market are valued. Recently, the Securities and Exchange Commission announced plans to finalize mandatory climate reporting by the end of 2021. Other factors include the ESG Disclosure Act of 2021, which will require companies to incorporate environmental, social and corporate governance metrics into shareholder presentations and set other mandatory reporting metrics.