Mergers, modernization and workforce

Features - Finance

Stifel Financial Corp. Managing Director Michael E. Hoffman interviews c-suite leaders of some of the biggest companies in waste and recycling.

July 11, 2022

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Michael E. Hoffman

At the Waste360/Stifel Investor Summit, emceed by Stifel Financial Corp. Managing Director Michael E. Hoffman, attendees heard a great deal about workforce challenges, modernization and mergers and acquisitions.

During an eight-hour event, which took place May 9 in Las Vegas as a part of WasteExpo, professionals from companies in the waste and recycling industry took turns speaking with Hoffman on a variety of topics. Hoffman consistently returned to several themes throughout the day, taking company leaders’ temperatures on their appetites for more acquisitions, discussing the gradual modernization of the industry and exploring the workforce challenges companies face.

Funding expansion and tech

J.D. Vargas of EQT Partners, which acquired Covanta, Morristown, New Jersey, last year, said he expects the processing side of the recycling industry to continue to expand.

“We think there’s an opportunity on the North American side to build out, for example, more recycling capabilities, brownfield expansion, greenfield expansion, [and] sourcing industrial waste versus municipal solid waste,” he said.

Brian Michaud of Littlejohn & Co., Greenwich, Connecticut, which owns Interstate Waste, said part of what makes waste and recycling a good place to invest is that the industry isn’t going anywhere.

“One of the reasons we like the waste industry and environmental services, more broadly, is that it’s recurring; it’s an essential service and, therefore, it’s highly stable,” he said.

He added that there’s a lot of activity in the industry, including mergers and acquisitions and other opportunities to invest.

Hoffman also asked the panel of private equity and infrastructure fund leaders what they look for in companies they invest in.

“One of the things I think would be helpful for those in this room is to understand the due diligence process from your perspective,” he said. “What do you need to see from a company in order to make that commitment [of] capital?”

Matt Rinklin of GCM Grosvenor, Chicago, which has acquired ReEnergy, said the firm takes a comprehensive look at companies it is interested in working with, considering everything from the management team’s receptiveness to private equity to environmental concerns.

“I think it’s kind of top-to-bottom, and it really starts with the management,” he said. “I think having the right alignment with management teams, having them be knowledgeable and be somebody or a team that’s open to working with private capital is critical. But, really it goes from market, legal, environmental, commercial and technical.”

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Expanding and retaining the workforce

During a separate session May 10 with National Waste & Recycling Association President and CEO Darrell Smith, Republic Services CEO Jon Vander Ark said driver shortages have been endemic within the waste hauling industry for decades and probably will be for many years to come.

“We’re certainly in a very unique moment of elevated inflation and tightness in the labor market,” he said. “I think every company here would hire more drivers if they could. If you kind of turn back the clock, though, people have talked about a driver shortage for 30 years, and I’ll bet 30 years from now, they’ll still be talking about it.”

The workforce shortage, which Vander Ark and others say has existed for years, has driven investment in technology, and that shortage also has contributed to small- and mid-sized companies being open to investment by private equity firms.

Labor challenges cut across all markets and exacerbate challenges elsewhere, said Steve Batchelor, senior vice president of operations for WM covering the western half of the U.S.

“We were proactive on doing market area analysis on wages in certain areas of the country,” he said during the Waste360/Stifel Investor Summit. “We found that everyone was impacted, urban, rural. The amounts were different; the labor dynamics were a little bit different, but the increases were across the board.”

Wages have gone up around 10 percent, but he said Houston-based WM will not let wages lag behind the market because of the negative effect rapid turnover of employees could have on efficiency and safety.

In addition to wages, companies also are considering working conditions for drivers and other employees and encouraging promotion from within to transition workers from a sorting position at a material recovery facility (MRF), for example, to driving positions.

Automation and technology

Some of the focus on technology centers on making jobs safer and easier for a wide range of people to accomplish. Investment in collection truck technology is one area where people and technology meet, and Kelly Rooney, vice president of people solutions for WM, said that technology can be used to help recruit drivers.

“Right now, it’s not a driving job; it’s a technical operation job,” she said. “That’s why we’d love to get people in the cab because it’s like driving a video game … and what you’re doing is operating this joystick all day.”

Companies also are considering whether to convert to electric vehicles (EVs). Although some electric trucks are on the road, Rafael Carrasco, senior vice president of operations for the eastern half of the country for WM, said with 70 percent of WM’s fleet on compressed natural gas (CNG), the company isn’t yet investing heavily in EVs.

“The other piece that argues for us to continue to foster our CNG fleet is that circularity piece,” Carrasco said. “We aim to fuel most of our CNG fleet through our own renewables at some point.”

Batchelor said he believes haulers will continue a drive toward the automation of trucks.

“We’re probably about 60 percent or probably a little more than that [automated],” he said. “I think the industry needs to push this … especially [when you consider] the workforce. To get them to come work for us, we need to make the job easier. We’re going to have to make everything containerized, not just [municipal solid waste] and not just recyclables, but yard waste and brush waste, bulky waste.”

Carrasco said that ties into campaigns throughout the industry aimed toward recruiting more women.

“It goes back to labor pools and what you were talking about in terms of getting more females out there,” he told Hoffman.

Some of the investment in technology will make it easier for customers to cope with trash and recyclables, as well, Batchelor said. In some locations, WM is offering roll-off customers on-demand collection of their containers, which can be ordered online. Ordering, routing and documentation that the roll-off container has been serviced can take place online, offering convenience to the customer.

“When it’s done, it’s confirmed that it’s done,” Batchelor said. “No human had to do that other than the driver who picked it up and took it to the disposal facility or processing facility. My guess is, that’s where the industry has to go.”