Consolidation continues

Statements and opinions expressed herein are solely those of the author and might not coincide with those of Houlihan Lokey.

Following the slower first half of the year in environmental services dealmaking, activity in 2025 has picked up given the combination of broader macroeconomic factors and sector-specific trends. As the markets enjoy growing clarity on the economic landscape and a robust financing environment, companies actively are pursuing opportunities to consolidate remaining permitted assets and build on the essential and counter-cyclical nature of the sector, while sponsors seek exits amid ongoing pressure to return capital to investors. A persistent supply-demand imbalance between ample investment capital and a finite universe of available targets also is driving activity and should continue into 2026.

Macro trends and sector dynamics

The early part of this year saw many companies sitting on the sidelines as economic uncertainty and rapidly changing positions on tariffs caused a pullback in the mergers and acquisitions (M&A) pipeline. However, post President Trump’s Liberation Day, the countercyclical nature of the environmental services sector proved beneficial, causing a “pull-forward” effect on companies and sponsors bringing deals to market.

Despite the tariff issue and some exposure to the general industrial sector creating hesitation, companies were able to take advantage of the sector’s resilient characteristics, proven during the COVID-19 pandemic, alongside the strong synergy value of buying within the sector. The sector’s low share of its customers’ overall wallets combined with a high cost of failure for its essential services along with other characteristics, helped foster increased M&A activity in the third quarter, which has continued into the fourth quarter. Unlike other sectors with less resilient characteristics, owners remain confident that their environmental services platforms will perform well and that the universe of potential buyers will remain robust.

The handful of deals that traded in the sector during the first half of the year or were in market for the first half drew strong interest at multiples that were high by historical standards for similar business models. The result has been a meaningful acceleration of activity over the past two quarters.

The market saw 80 deals and $1.1 billion in transaction value announced in the first quarter. The cumulative number of deals increased to 143 at a transaction value of $6.8 billion in the second quarter and to 219 deals with a transaction value of $11.1 billion in the third quarter. While deal counts in the second and third quarters (63 and 76, respectively) were lower than in the first quarter, transaction values were up significantly.

Also apparent was the beneficial impact of strong recurring revenue characteristics in the form of either long-term contracts or master service agreements with the ability to pass through price increases, concurrent with ownership of scarce permitted assets that are difficult to replicate and often embedded in the local waste ecosystem.

This combination of factors enabled companies to enhance revenue with strong pricing power—an element that persisted in the third quarter.

What’s behind current dealmaking activity?

A key factor driving environmental services M&A activity is a rush to consolidate the remaining permitted assets, particularly in the industrial and hazardous waste segments of the market. Facilities of this type, which are difficult to greenfield, are enjoying scarcity value. As such, assets are being acquired more quickly than new ones emerge. The result is something of a “land grab” as companies realize they must either scale up or become an acquisition target themselves.

The 2022 sale of U.S. Ecology Inc. to Republic Services, on which Houlihan Lokey advised Boise, Idaho-based U.S. Ecology, was a major catalyst of this trend. The purchase established Phoenix-based Republic as a major player in the sector, with stronger buying power than its competitors, which saw the writing on the wall and initiated a rush of strategic acquisitions of permitted industrial waste sites, lest Republic become the default buyer for assets. As a result, hazardous and industrial waste platforms have continued to trade at historically high multiples, including Houlihan Lokey client Shamrock Environmental of Browns Summit, North Carolina, which Republic also acquired in February.

Among other key trends is one shared across most sectors in 2025—the need for sponsors to exit some of their portfolio holdings and return capital to their limited partners. The attractive characteristics of the sector give sponsors confidence that they can sell their environmental services holdings in nearly any market environment. As such, environmental services holdings tend to be among the first that sponsors seek to exit to generate distributions to paid-in capital.

However, on the other side of the equation, the massive amount of dry powder among sponsors, alongside quickly approaching “deployment walls” for many funds to use or lose limited partner capital, will continue to have a positive effect on investment activity. We also have seen the broader trend of sponsors selling assets to continuation vehicles manifest in the environmental services sector as a combination of familiarity with owned assets and confidence in the ability to continue growing them comes into conflict with the need to return capital to investors today. Houlihan Lokey’s Environmental Services and Capital Solutions practices have witnessed this trend in the industry through their role in advising sponsors that have sold their trophy assets into continuation vehicles over the past few years.

To a smaller extent, the Trump administration’s friendliness toward the oil and gas sector, where many environmental services companies are beneficiaries, adds to deal activity. Hesitation to increase exposure to the sector during the Biden administration has been dissipating under the new administration, and businesses are being valued more on fundamentals as opposed to a binary view of whether to invest, either directly or indirectly, in a fossil fuel-based market.

Recovering from headwinds

In terms of potential headwinds to deal activity, industrials-exposed businesses faced some challenges, particularly in the second quarter, but they appear to have recovered quickly.

A more persistent challenge lies in labor constraints as companies seek experienced leadership to help them grow and navigate the current market environment. We expect this trend to persist for longer than the aforementioned industrials exposure risk, but we do not expect it to have an outsized impact on deal activity. However, good leadership is critical, especially as consolidation creates larger platforms and competition for permitted assets continues to heat up.

Lastly, while the Trump administration has had some beneficial impact on the environmental services sector by virtue of its more business-friendly posture and the aforementioned shift in sentiment regarding the fossil fuel industry, it is somewhat a tale of two cities as the new administration creates ambiguity around regulatory and enforcement issues, particularly on how to define and manage emerging contaminants.

This lack of clarity combined with decreased funding for the Environmental Protection Agency is having a negative impact on companies’ willingness to invest in new technologies. Uncertainty surrounding the direction of regulatory policy also is affecting the recycling and beneficial reuse segments of the sector. Only time will tell whether regulatory policy will become clearer.

A look ahead

We do not believe these headwinds will have a major impact on activity and expect current trends to continue into 2026. It stands to reason that the administration will continue to deliver increased clarity, rather than ambiguity, to the market on macroeconomic factors and sector-specific regulations and policies. The sector has proven time and again its defensibility and ability to grow through a wide variety of market conditions. Continued pursuit of scarce, valuable permitted assets, timing pressure among sponsors to return capital and the inherently attractive characteristics of the sector aren’t going away. The financing environment also is expected to remain strong.

Several platforms are preparing to go to market after staying on the sidelines earlier in the year. The supply-demand imbalance between available investment capital and scarce assets is expected to keep driving dealmaking activity.

Finally, as infrastructure funds continue to broaden their definitions of appropriate fund investments, we can expect to see infrastructure fund activity in the environmental services sector. I Squared Capital’s acquisition of Pittsburgh-based Liberty Tire Recycling from Energy Capital Partners in October and Goldman Sachs Alternatives’ acquisition of Liquid Environmental Solutions, Irving, Texas, from Audax in September (Houlihan Lokey had an advisory role in both transactions.) are representative of this trend. Funds’ search for returns and attractive opportunities in environmental services is not expected to abate.

Scott Sergeant is a managing director and global head of Houlihan Lokey’s Environmental Services practice. He also heads the firm’s Business Services group in Europe. Over the past several years, Sergeant has transacted with a large number of leading environmental services companies and high-quality financial sponsors and infrastructure funds that have invested in the sector. Jordan Mendel is a managing director in Houlihan Lokey’s Business Services Group and a senior officer in the firm’s Environmental Services practice. He has more than a decade of investment banking experience advising private and public companies on M&A, strategic alternatives, special situations, activism defense and capital markets. Sergeant and Mendel are based in the firm’s New York office.