Pandemic tailwinds, including the resurgence of per capita income and healthy business activity, are expected to provide a favorable outlook for the waste and recycling industries in 2022, says Capstone Partners, a middle-market investment banking firm with headquarters in Boston and Denver, in its recently released February 2022 Waste and Recycling Update.
Consumer spending, which accounts for two-thirds of U.S. economic activity, is expected to remain high, supported by wage growth and ample savings, and to bolster waste and recycling demand, the company says.
Construction and manufacturing activity also have trended upward, creating healthy waste volumes. In addition, recycled material volumes are rising, driven by increased consumer awareness and environmentally friendly policies in certain regions of the United States. Growing demand for recycling services and circular economy solutions represent a promising opportunity for sector participants. However, despite the favorable demand backdrop, the nationwide labor shortage is expected to challenge the industry as elevated waste volumes drive overtime costs higher, Capstone says.
Sector merger and acquisition (M & A) activity surged in 2021, increasing 65 percent year over year, as buyers consolidated competitors to establish regional dominance and sellers sought to maximize take-home earnings ahead of a potential capital gains tax increase. Add-on deals and public strategic acquisitions accounted for the lion’s share of transactions as large players and private equity- (PE-) backed companies executed roll-up strategies. Waste and recycling companies have increasingly sought financial support from PE firms to execute growth strategies and capture market share.
In its report, Capstone says it expects buyers to continue seeking companies offering innovative solutions as automation, artificial intelligence, robotics and machine learning technology become integral factors in cost-cutting and green practice solutions.
“M&A activity surged in 2021 driven by pent-up deal demand, the desire for founders to seek liquidity and the need for owners to position their companies for expanded growth opportunities,” says Capstone Partners Managing Director Doug Usifer. “Profitable and growing companies that offer recycling, automation efficiency, and environmentally-friendly waste solutions are particularly attractive.”
Capstone says the report also describes how the proliferation of circular economy measures present opportunities for innovative, environmentally-minded companies. It also details performance and growth strategies from leading players’ third-quarter 2021 earnings calls.