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A Note From The Editor:
WasteExpo was held May 9-12 in Dallas. The educational sessions provided a wealth of industry information on key industry issues, some of which will be featured and detailed in future editions of the Circular File. For this month, however, we are focusing on impressions from the show floor, and related tidbits from various educational session presentations.
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Conversational Impressions from the Show Floor
The mood at this year’s show was again improved over last year, reflecting largely stable business conditions, with cautious optimism again probably the best characterization. Registration for the conference program was up 20% over the prior year, and the number of exhibitors rose 10%. As for vendor commentary, almost universally, business at the show was described as better than last year. Below are thoughts on key industry drivers gleaned from numerous discussions with industry players, both public and private.
Volumes—A Seasonal Uptick is Spotted
The haulers seemed to be in the midst of, and anticipating, much more typical and stronger seasonality than has been the case for a number of years. Temporary roll-off was often described as experiencing a long awaited uptick, variously attributed to remodeling, cleanup, special waste and other industrial work, if not to new construction. The backlog of roll-off bins previously piled high in yards is coming down steadily. Small container commercial work, however, seemingly still remains stuck in neutral, by many reports; it is stable, but with no discernable or lasting uptrend, awaiting a stronger consumer. Most lost work was not blamed on “market share grabs” by other competitors, but rather continued bankruptcies.
Pricing—Nothing Dramatically Different to Report
For a change, pricing was not a dominant theme or source of conversation at the show, probably the best indication that it remains competitive, but still relatively disciplined, given the extent of the economic downturn, with no dramatic changes in pricing behavior by major participants in the industry. Although there is always the traditional finger pointing, and reports of poor pricing practices, again there was no real consistency to the complaints. The notable exception would be municipal contracts, or franchise work, which appears to have become much more competitive, as all the players are increasingly trying to hang onto this type of work.
Equipment Vendors and CNG-Powered Trucks
As previously noted, most vendors noted that business was up over last year, with good traffic in their booths. This is probably in no small part due to the 100% business investment expensing deduction, or bonus depreciation, but very welcome nonetheless. The dominant equipment topic, by a wide margin, was natural gas, or more specifically, CNG-powered trucks. Although this may have been influenced by the fact that T Boone Pickens was the keynote speaker, the economics of CNG-powered trucks are increasingly compelling. Please see our December Circular File, “Running on Natural Gas”, for a thumb nail sketch of CNG-powered truck economics for the solid waste industry, which have only become more favorable with this year’s rise in diesel prices. A packed educational session, “Haulers’ Experiences with Hybrid and Alternative Fuel Vehicles”, discussed the pros and cons of CNG-powered trucks, and laid out economics quite consistent with our December analysis. The use of these trucks has moved well beyond the majors and/or Coastal players, and a number of mid-sized regional players have announced investments. We found it interesting that sponsors for the keynote address included Advanced Disposal and Waste Pro, both of whom have announced recent investments in natural gas vehicles. From the educational session, it appears that one of the biggest remaining hurdles is getting the CNG-powered trucks to the hub itself—often there are no, or not enough, fueling stations to get the trucks from the manufacturer to where the customer wants them!
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Industry Resources
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M&A—Moving Into High Gear
As we’ve written repeatedly, 2010 marked the re-emergence of acquisition activity in the industry, which is only accelerating through the course of 2011. A number of driving factors came up at the show. First, private equity remains very interested in the sector, as evidenced by another packed educational session (“Show Me the Money”)—however, it should be noted that not only was the audience packed, so was the panel of presenting private equity firms! Liquidity and credit conditions are markedly improved from two years ago, with leverage covenant ratios again approaching up to 4x. Acquisition multiples are also on the rise, generally characterized as moving into the range of 6x-8x EBITDA, versus 5x-7x a year ago, though it should be noted that only companies with $10 million or more in EBITDA are likely to see the higher multiple levels (or the higher leverage ratios). Aside from private equity, the strategic buyers are all very active, including Republic Services, which has restarted its acquisition program. Secular waste diversion and segmentation trends (discussed in more detail below), may be a factor in forcing some of the smaller haulers’ hands, given the higher capital costs involved in single stream recycling and other waste recovery/conversion technologies. That said, we sense that in the remainder of the year, several mid-size chess pieces will also move around on the industry board. Besides the private equity-backed regional independents that are always speculated upon, perhaps even a couple family-run regional independents may be sellers. These companies are generally able to handle the greater upcoming capital needs that will be required, but may be motivated by generational changes, or a “getting out while the getting’s good” rational, given higher multiples.
A Paradigm Shift is Coming
Waste Management starting talking about secular waste diversion and segmentation trends and waste conversion technologies at its investor day in March 2010, an early, almost lone voice. Now, seemingly the whole show was talking about these trends in the in industry. Sustainability and waste reduction/diversion/recovery/conversion has gone mainstream, given high commodity prices, and the fact that more companies (customers) have found it economic. The genie is not going back into the bottle, and many industry participants believe they are looking at the first major paradigm shift in the industry since Subtitle D. More single stream recycling has almost become the most basic answer, while increasing focus is turning to organics diversion, handling, and processing technologies. As far as waste to energy conversion technologies, however, we were unable to determine from the show who’s built the better mousetrap, or at least one that’s economic on a large scale! |
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We Want to Hear From You
We would like your feedback, thoughts, suggestions, etc., as we create future issues of The Circular File. Please send questions or comments to rita.ugianskis@penton.com or lyoung74@comcast.net. Your input will be invaluable.
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