Sorting out uncertainty


June 3, 2020

As the U.S. has slowly started coming out of a monthslong holding pattern spurred by COVID-19 shutdowns and economic turbulence, uncertainty abounds as to what the country might expect moving forward.

But with all the talk of a “new normal,” some are projecting that the reality might be closer to business as usual, at least as it pertains to activity in the waste sector.

Heading into 2020, merger and acquisition (M&A) activity in the waste and environmental services industries was cresting at historic levels, which continued into Q1.

Boston-based Capstone Headwaters reported in its Q1 Waste & Recycling Executive Summary released April 27 that waste and recycling M&A activity picked up in the first quarter, increasing 48 percent.

And while COVID-19 might have increased deal selectiveness and slowed some due diligence on deals still in their infancy during Q2, prospective buyers have remained active, according to Michael E. Hoffman, managing director at St. Louis-based Stifel.

Hoffman suggests that although the virus might ultimately result in deals taking longer to get done in the short term, as professionals are able to resume work and travel, the pipeline of sellers in the market might set the stage for a busy second half of the year.

“As we return to some sense of relative normalcy, I think at the end of the year, except for the slight delay that was caused in the second quarter, the industry will say it had as active of a deal year as it did in ‘19, ‘18 and ‘17,” Hoffman says. “There might end up being slightly less revenues because you’ve lost two or three months of activity, but the actual pace of activity could end up being fully in line with what you thought it was going to be [at the beginning of the year].”

Hoffman says that while a strong second half of the year could very well be in the offing in terms of waste sector buying and selling, the reason for the pace of activity could have more to do with political reasons than pent-up demand as state and local restrictions are loosened. He says that business owners concerned about a change in political leadership in Washington in 2021, and specifically about what that could historically mean from a tax perspective, could more readily come to the table looking to initiate selling their business towards the end of the year.

Despite uncertainties—COVID-19-related, political and otherwise—Hoffman projects a busy end to 2020.

“I believe we’re in a swoosh-[shaped recovery], not a V, not a U, not a W,” he says. “I think it might be a string of swooshes, so shallow little dips as we roll through service interval changes and some lost businesses, followed by stronger activity. I think as long as we’re in a position where people can start moving around and do due diligence, and you can get all the logistical-related issues that might slow down an M&A process ironed out and those become moot, you’ll see M&A business [pick back up right where we started the year off at.]”