The rapid pace of, and appetite for, merger and acquisition activity in the waste and environmental services sector has marked an era of consolidation that has helped define the industry. With more owners looking to buy and sell their businesses, private equity firms have increasingly flocked to enter the space thanks to the prospect of recurring recession-resistant revenue and enticing returns on capital.
Amid the competition, one firm that has helped establish itself as a fixture in the sector is Toronto-based Clairvest. Spearheaded by Michael Castellarin, managing director, and Adrian Pasricha, partner, the company has staked its claim as one of the firms of choice for waste operators in need of capital and investment expertise.
Opening the door to opportunity
According to Castellarin, he identified the waste sector as one ripe for investment 15 years ago when assessing potential avenues of opportunity for his firm. After making inroads in the field, Clairvest committed to its first partnership with West Babylon, New York-based Winters Bros.
“I identified the solid waste management industry as one in which industry players can benefit from high barriers to entry, fragmented customers, recurring revenue, attractive acquisition pipelines and strong margins and return on capital,” Castellarin says. “I began networking in the industry, and my connections at Comerica Bank introduced me to the Winters family, with whom Clairvest formed its first investment partnership in 2006. It’s worth noting we remain partners with both Comerica Bank and the Winters family today. Over time, Clairvest expanded its domain work beyond the solid waste management industry to encompass the environmental services sector, which for Clairvest, entails several industries of interest including organic waste management, hazardous and non-hazardous liquid waste management, environmental consulting, equipment rental, etc.”
Castellarin says that in the waste industry, Clairvest found a client base hungry for not only the capital resources the company possesses, but also the knowledge and experience the firm had to offer.
“Our objective is to work with owner operators and families to help them achieve their growth objectives. We identified the environmental sector as one with many founder- and family-owned companies to whom we could offer patient, knowledgeable equity capital and active support with projects such as debt financings, acquisition execution, greenfield developments, financial and operational reporting and building and preparing for an ultimate sale to a strategic buyer,” he says.
Pasricha acknowledges that the needs of every client vary. From a capital perspective, he says some owners are looking for an amount of liquidity to manage their net worth whereas others are strictly looking for growth capital. Others rely on the firm for its background in managing debt financing. From a knowledge and experience perspective, some companies want a private equity partner that can help with financial planning and forecasting for either organic growth investments or acquisitions, while others most need assistance with strategic planning.
For those contemplating a sale, Pasricha says business owners should weigh several factors when deciding whether it’s the right time to sell the business outright or retain equity.
“It’s an important insight that each business owner’s situation is unique and what works for one will not work for all,” Pasricha says. “It’s also true that businesses grow in step functions: the organization and processes that get you from $10 million to $50 million in revenue are not the same ones that can normally get you to $200 million. I would say it makes more sense to bring on an equity partner like Clairvest when the entrepreneur can see an exciting and significant growth opportunity in front of him or her but is less clear on how to build the organization and raise the financing needed to get there. In our typical deal structure, our operating partners retain half or more of the equity in their companies, thereby giving them the opportunity to generate far more wealth for themselves in the future than via a 100 percent sale today. On the other hand, if the CEO does not have a clear vision for how to continue growing the company or would prefer to exit the business or retire in the near term, a 100 percent sale to maximize value probably is the right course of action.”
Inside the deals
In the decade and a half since Clairvest first partnered with Winter Bros., the company has steadily built a roster of customers in the waste industry. The company shows no signs of slowing, as it kicked off 2020 with a pair of high-profile deals.
Clairvest Group Inc. and Clairvest Equity Partners IV announced Jan. 2 that the group completed the sale of 100 percent of the interests in Clifton Park, New York-based County Waste of Virginia to Ontario, Canada-based GFL Environmental Inc. Clairvest made its initial investment in County Waste in 2013 following a prior partnership with the company’s management at Hudson Valley Waste Inc.
Then, on Jan. 20, Clairvest announced it led a $32 million minority growth equity financing in DTG Recycle, Mill Creek, Washington, in partnership with existing shareholders.
In both cases, management at County Waste and DTG opted to bring on an equity partner rather than sell 100 percent of the business outright.
Pasricha says that upon Clairvest partnering with County Waste in 2013, the company executed an aggressive acquisition strategy spearheaded by County Waste CEO Scott Earl and completed more than 60 follow-on acquisitions, growing revenue by over 400 percent and expanding market share across the company’s core markets.
“The key was Scott Earl’s identification of the Virginia and Pennsylvania markets as ones with fragmented operators, particularly in the subscription residential line of business, who could be acquired at attractive valuations (on a post-synergy basis),” Pasricha says. “Scott and his team also have a tried-and-true playbook for onboarding acquisitions on a very efficient timeline. Our role was to help where we were needed on certain deals and to actively work with Scott and Jerry [Cifor, a key advisor and board member to the company] to monitor the deal pipeline so that we could model capital needs to ensure County Waste had funds available to keep growing.”
Castellarin says that this growth trajectory helped make County Waste an attractive acquisition target for GFL, who started engaging with the company roughly a year and a half before closing to try and ascertain whether the two companies’ operations would mesh in the Mid-Atlantic region.
“[GFL’s] management team was focused on strategic growth, and County Waste of Virginia represented a materially sized company with a strong market position and attractive remaining growth opportunities. GFL’s management had the vision and conviction to offer County Waste’s equity holders a compelling valuation that reflected these attributes,” Castellarin says.
At the closing of the sale, Clairvest realized a multiple of capital of 3.6x and an internal rate of return (IRR) of 30 percent on its $48 million investment before considering a deferred contingent payment that is based on achieving certain corporate milestones, the company announced. The contingent payment, if earned, would bring the aggregate return on Clairvest’s investment to 4.6x.
Earl says that after working with Clairvest at Hudson Valley Waste Inc., which resulted in a successful sale to Waste Connections in 2011, he knew their team was the right one to help grow County Waste’s footprint.
“I decided to pursue the initial roll-up of the Virginia market on my own for a few years [at County Waste], but once I dove in and saw just how big the market opportunity was, I said, ‘We’re gonna need a bigger boat!’” Earl says. “I called up Michael [Castellarin] and told him it was time to get back in the water. … I wanted a partner who is responsive to my aggressive growth ambitions and one that can adapt to my style of planning and execution. Clairvest has always acted like they have been invited into the company, not like they own it. That was always very important to me—to still feel like I was the primary owner of the business despite having brought on an equity partner.”
Earl says that Clairvest ultimately helped the company forecast its growing business to ensure County Waste had the capital to pursue deals and executive organic growth strategies as they presented themselves. They also helped customize the company’s credit agreements and stepped in with the necessary capital when the company’s growth outpaced banks’ ability to lend.
“Clairvest has always acted like they have been invited to the company, not like they own it. That was always very important to me.” - County Waste CEO Scott Earl
It’s this ability to do what was necessary to drive the business forward that Earl says was instrumental to the partnership’s success, ultimately culminating in the sale to GFL, which Earl says was a natural fit.
“I see GFL as business builders, just as I have been in my career,” Earl says. “I felt that they were going to keep County Waste on an aggressive growth trajectory, and I liked that. They were willing to acknowledge the embedded opportunities we still had in front of us and compensate us accordingly.”
Dan Guimont, principal owner and president of DTG, says that like Earl, his partnership with Clairvest was born out of the realization that the company could use a private equity sponsor to achieve the ambitious growth targets he had set out for the company. After DTG CEO Tom Vaughn met with Castellarin at Waste Today’s Corporate Growth Conference in fall 2018, conversations eventually led to the two organizations forging a relationship that culminated in the minority growth equity financing deal.
“We have such a massive growth opportunity in front of us at DTG right now, there was never any consideration given to selling,” Guimont says. “During 2018 and 2019, we added a number of facilities organically and via acquisition, but did not want to slow down our growth, so we knew additional equity firepower would be required. We spoke to a limited number of capital providers, but the Clairvest team really spoke our language, so we felt confident they could hit the ground running. … Clairvest has been involved in multiple high-growth environmental companies, many of which were sold to strategic buyers. We are confident they will be able to support our aggressive growth targets and help us shape DTG into a strategic acquisition for a larger environmental company.”
Although owners have unique needs that are dependent on their specific operation, Pasricha says that being able to forge a relationship with clients is the basis for a successful partnership.
“Most entrepreneurs and owners we meet are very concerned and focused on finding the right cultural and interpersonal fit and have an intuitive understanding of what that means for them and their company,” Pasricha says. “In our experience, entrepreneurs are tremendous at judging people and so they gain a solid understanding of us and whether we represent a good fit very quickly.”
Castellarin says that building this trust with a potential private equity firm requires due diligence, and that for those operators looking for the right partner, there is no substitute for spending time with the principals involved to become familiar with who they are and what they can provide.
“I think business owners should understand that while private equity firms may look the same on the outside, the people, history, work styles and culture, strategies and value-add approach can vary significantly. If, as an entrepreneur, you’re staying on to lead the business and effectively reinvesting most of your net worth in the company, you should spend as much time with a private equity firm as possible to ensure there is alignment on parameters that are most important to you before making a decision on who to partner with.”
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