Cranford, New Jersey-based Metalico Inc. has purchased an auto shredder yard in northeast Ohio from the Liberty Iron & Metal subsidiary of Hong Kong-based Chiho Environmental Group.
A recap of the transaction prepared by Chiho for the Hong Kong Exchanges and Clearing Ltd. and The Stock Exchange of Hong Kong Ltd. says the sale was completed Dec. 25, 2020, for $13.2 million. Chiho stock is listed on the Hong Kong Stock Exchange, triggering the disclosure.
The recap states in part, “The seller is Liberty Iron & Metal Inc., an indirectly wholly owned subsidiary of [Chiho]. The buyers are Chloe Girard LLC (Metalico Girard) and Metalico Youngstown Inc. (Metalico Youngstown). The buyers are part of Ye Chiu Metal Recycling (China) Ltd., listed on the Shanghai Stock Exchange [and] one of the largest secondary aluminum producers globally.”
The purchased yard in Girard, which is near Youngstown, Ohio, had been part of the Diamond family-owned Liberty Iron & Metal before it was purchased in part by the Germany-based Scholz Group in 2007 and in entirety by Scholz in 2016. Scholz Group itself was purchased by Chiho in 2016.
Chiho’s December 2020 transaction summary states in part, “The proceeds from the sale will be primarily used to repay existing local bilateral bank loans secured over the [disposed of] assets, hence reducing loans and financial expenses.” Adds Chiho in its recap, “The company conducted an auction sales process for the disposal of assets, and the buyers offered the best price.”
The recap indicates additional Chiho disinvestment could be in the works. “The company has reviewed its geographic footprint and decided to strategically refocus on its Southwest [United States] operations and divest the disposed of assets. The Disposal Assets include certain properties, equipment, and inventory of the shredder facility that the company owns and operate in Ohio [and] Pennsylvania. After the divestment, the company will cease to own and operate the Girard shredder facility.”
In addition to the sold Girard shredder yard, Liberty’s website lists a shredder yard in Erie, Pennsylvania, and another facility in Sharon, Pennsylvania, as remaining eastern U.S. assets. In the Southwest, Liberty has a shredder yard in Phoenix and another location in Chihuahua, Mexico.
IMF endorses Brazil government’s COVID-19 response
Global lending authority says nation’s government enacted “strong policy response” to avert worse economic damage.
An International Monetary Fund (IMF) executive board assessment of the Brazilian government’s response to COVID-19 and economically damaging restrictions cites the nation for a “strong policy response” that helped avert “a deeper economic downturn.”
In the early December document, the Washington-based IMF calls the Brazilian government’s response in 2020 to the economic consequences of COVID-19 “swift and sizable.” Adds the IMF, “The authorities implemented emergency cash transfer and employment retention programs, increased health spending, provided financial support to subnational governments, and extended government-backed credit lines to small businesses. In all, fiscal and quasi-fiscal measures amounted to 18 percent of GDP, raising the primary deficit to about 12 percent of GDP in 2020 from 1 percent in 2019.”
The people of Brazil have suffered from COVID-19. As of Dec. 29, the Johns Hopkins University COVID-19 dashboard for Brazil shows more than 7.5 million cases detected, leading to more than 190,000 deaths.
The economic consequences in 2020 also were significant, notes the IMF. “The economy is projected to shrink by 5.8 percent in 2020, followed by a partial recovery to 2.8 percent [growth] in 2021,” writes the organization. “The lingering effects of the health crisis and the expected withdrawal of fiscal support will restrain consumption while investment will be hampered by idle capacity and high uncertainty.”
The IMF Executive Board assessment concludes that “good policies had positioned the Brazilian economy to take off in 2020, but the pandemic had a severe impact on the economy.”
The group of board directors says policies in 2021 “should focus on limiting the scarring effects of the pandemic, ensuring medium-term debt sustainability, and pressing ahead with reforms to foster a robust and inclusive recovery.”
Of interest to recyclers, the document summarizing the assessment adds, “A number of directors also highlighted the importance of policies for a green recovery.”
Much of the 70-page staff report on the IMF assessment focuses on banking and fiscal policy, without taking an in-depth look at metals intensive infrastructure spending as a policy measure. Such measures in some Latin American nations seem to have contributed to a steelmaking rebound in the region.
One note on infrastructure spending includes a mention that the “IMF Technical Assistance (PIMA) mission found the most significant areas of weakness in public investment were in the strategic prioritization of spending and project selection and appraisal.”
Adds the IMF, “Based on those findings, staff urge the authorities to develop a prioritized portfolio of high-quality projects and establishing a new, more rigorous process for project selection, appraisal and approval.”
Steelmakers like Peru’s Aceros Arequipa have begun supplying steel to rebounding regional economies.
Photo courtesy of Aceros Arequipa, Peru.
Latin American steel output rebounds to prepandemic level
Brazil, Mexico among nations that surpassed year-ago output in November 2020.
November 2020 steel output in several Central and South American nations has surpassed November 2019 figures, including in Mexico and Brazil, the region’s two largest steel producers.
According to figures from 64 nations assembled by the Brussels-based World Steel Association (Worldsteel), Brazil produced 3 million metric tons of crude steel in November 2020, up 11.2 per compared with November 2019.
Mexico’s rebound has not been as sharp, but an infrastructure spending program helped the nation produce 1.45 million metric tons in November 2020, up 1.7 percent compared with November 2019.
Brazil’s output boost helped South America as a continent produce more than 3.65 million metric tons of steel in November 2020, representing an 8.3 percent rise over November 2019.
The ramping back up of steel production in nations including Brazil, Peru and Ecuador, and subsequent scrap demand, has been a contributing factor to rebounding ferrous scrap prices in the United States and the rest of the world.
The late year resurgence is needed to help steel producers in Latin America try to catch up with production and revenue levels from the year before. Year-to-date figures in every Latin American nation other than Chile show a reduction in steel output. (Chile experienced a 2.6 rise in steel output in the first 11 months of 2020 compared with the same period in 2019.)
A combination of economic conditions and steel company decisions combined to cause Argentina to produce 24.4 percent less steel in the first 11 months of 2020 compared with 2019.
Despite the recent better health of the steel sector in Mexico and Brazil, those nations have remained behind their overall 2019 pace. Brazil’s output was down by 6.7 percent in the first 11 months of 2020, while Mexico’s shrank by 10.6 percent. By comparison, steel output in the United States fell 17.9 percent in the first 11 months of 2019 compared with the same timeframe in 2019.
What remains of Venezuela’s steel industry has shrunk yet more in 2020. In the first 11 months of the year, Venezuelan mills and foundries produced 26,000 metric tons of steel, down 47.7 percent from the 50,000 metric tons of output in the first 11 months of 2019.
The Maine Department of Environmental Protection (DEP) has announced that it is delaying its plans to ban single-use plastic carryout bags that had been scheduled to go into effect Jan. 15, 2021 and a polystyrene (PS) foam disposable foodservice container ban that had been scheduled to go into effect Jan. 1, 2021. The DEP reports that it is delaying enforcement on these bans to July 1, 2021.
The DEP had initially announced its ban of single-use plastic carryout bags April 22. According to a news release from the Maine DEP, the delay comes in response to the COVID-19 pandemic.
“The COVID-19 worldwide pandemic has disrupted traditional food marketing and packaging supplies. Demand for groceries, ‘curbside pickup,’ and takeout food has increased, while the demand for paper bags and thicker reusable plastic bags has also increased resulting in substantially less supply of reusable plastic bags and paper bags—the substitutes allowed for single-use plastic carryout bags under the bag law,” the DEP states on its website.
Due to concerns over possible virus transmission, the DEP says retailers have also asked customers not to bring reusable bags from home. The DEP reports that COVID-19 safety protocols have also led to greater caution with handling of food and beverages and increased demand for disposable foodservice containers.
“Schools, homeless shelters and other groups are providing more food in disposable packaging than before the pandemic. Therefore, the department has decided to exercise its enforcement discretion to not enforce both the single-use plastic carryout bag ban and the polystyrene foam disposable foodservice container ban until July 1, 2021,” the DEP states. “The delay in enforcement of these bans is not intended to downplay the importance of eliminating single-use plastic carryout bags and polystyrene foam disposable foodservice containers from the waste stream but rather to address current concerns related to impacts of the pandemic. The department strongly encourages those that use single-use plastic carryout bags and polystyrene foam disposable foodservice containers to use this additional time to focus on procuring alternatives to these products and on depleting current stocks of these products before the July 1, 2021, enforcement date.”
2020 waste industry M&A recap
Waste and recycling companies have retained their attractiveness to investors despite the pandemic and the subsequent downturn.
Whether because of growth opportunities or a perceived lack of exposure to the worst impacts of economic cycles, waste services companies seem to have remained in good stead with investors in 2020. This is despite the fact that 2020 will long be remembered as a year of extreme volatility caused by a global pandemic.
While backing those responsible for the proper handling of waste (including medical waste) during a pandemic represents a potential sensible play in the eyes of some investors, the overarching desire by corporations and some governments to divert municipal solid waste (MSW) from landfills has served to attract investors looking to put their money to work in a sector poised for growth.
The combination of reliability and the potential emergence of disruptive recycling or waste-to-energy technology has helped keep merger and acquisition (M&A) activity vibrant in the waste sector, despite all that COVID-19 and the economic downturn have thrown at the economy.
A lot to overcome
The double-digit decline in GDP that hit the world’s developed economies in the second quarter had an abrupt and widespread impact on M&A activity.
According to Vancouver, Canada-based Canaccord Genuity, the second quarter “represented the lowest level of global M&A activity in 16 years, [with] a year-over-year decline of 62 percent.”
Investors did not remain on the sidelines for long, according to the firm, with the third quarter seeing transaction values increase by 160 percent compared to the previous quarter and, perhaps more remarkably, by 33 percent year over year.
An early October online article by Industrial Equipment News referred to the third quarter as entailing a “$1 trillion rebound” in M&A activity in the United States, calling it an “80 percent surge from the second quarter’s $555.9 billion” level, creating M&A’s “strongest third quarter by deal value in more than a decade.”
An analyst quoted by the publication commented that “a lot of that has to do with pent-up demand and a lot of conversations happening in the spring.” Another said the downturn and subsequent recovery gave potential buyers enough time to “understand a little bit of what the pandemic meant to business models” of companies they were considering purchasing.
That pause was true not just for fund managers seeking companies to buy, but also for most larger corporations that do some acquiring of their own—including in the waste sector.
“COVID-19 did result in our team taking a brief pause (45 to 60 days) on our M&A activity, as the business adjusted to the new environment,” states Bob Cappadona, chief operations officer of the North American Environmental Solutions and Services business unit of France-based Veolia.
After that roughly two-month pause, says Cappadona, “Our M&A evaluation process resumed to pre-pandemic levels.”
That return to research and investing is likely not a surprise to Effram E. Kaplan, managing director and a principal of investment bank Brown, Gibbons, Lang, & Co. (BGL). While there can be “some importance” tied to the timing of a transaction, Kaplan says, “Management teams must remain hyper-focused on developing and adhering to a strategic plan. Vision and execution are critical when assessing value.”
As 2020 turns to 2021, public health and economic issues have been joined by the likelihood of considerable gridlock at the federal government level. Although reasons to shy away from M&A activity continue to exist, the pattern of investors thus far has been to keep seeking opportunities.
Announced acquisitions in the waste and recycling sector in 2020 ranged in size. One of the largest got its start well before 2020 or COVID-19 was a factor—the $4.6 billion acquisition of Florida-based Advanced Disposal by Houston-based Waste Management Inc. (WM).
The acquisition was announced in April 2019, but then faced a lengthy delay in part because the United States Department of Justice (DOJ) insisted some Advanced Disposal assets would have to be divested to a buyer other than WM to maintain competition in some regions.
Upon the deal getting final approval in late October, WM President and CEO Jim Fish remarked, “We are excited to reach the finish line on this compelling acquisition, and I would like to welcome the Advanced Disposal team members to the WM family. The acquisition expands Waste Management’s reach and positions us for significant earnings and cash flow growth.”
Among the moves made to receive the DOJ’s approval, Canada-based GFL Environmental Inc. paid WM $835 million to acquire 32 collection operations (involving more than 375 trucks), 36 transfer stations and 18 landfills in several U.S. states.
Another large deal involved the purchase of Texas-based WCA Waste Corp. by GFL Environmental. That $1.2 billion deal was finalized in early October.
Other acquisitions announced in the third quarter included:
Houston-based American AllWaste LLC acquiring Austin-based Walker Aero Enterprises LLC and its affiliated companies, which include JV Dirt & Loam, Daisy Works and Sheridan Environmental;
Michigan-based Priority Waste adding a Detroit-area firm’s operations to its account base.
Smaller transactions can represent a hidden but significant part of the waste M&A landscape, according to Andy Schwartz, managing director and co-head of the waste and environmental services practice of St. Petersburg, Florida-based Raymond James.
“While many of us remain focused on the sizable, headline-worthy deals happening in the industry, there have been numerous smaller, under-the-radar transactions,” said Schwartz in a September interview with Waste Today.
Kaplan and Cappadona were among the panelists at the mid-October 2020 Corporate Growth Conference.
Heading into that event, Schwartz told Waste Today, “Large consolidators are consistently spending hundreds of millions of dollars on M&A annually, both pre-COVID and through the COVID pandemic. A lot of transactions are taking place, and multiples remain at historically elevated levels.”
Reached a couple of weeks after the event ended in early November, Kaplan said waste services have indeed gained the attention of capital markets participants, and part of the reason is greater familiarity with the sector.
Niches and knowledge
In addition to the market’s increasing familiarity with the waste and environmental sector—which Kaplan says BGL has been focused on developing—Kaplan indicates there is diversity within the waste and recycling sector that can garner M&A interest from investors with a wide variety of backgrounds and strategies.
Some aspects of recycling can be valued differently, and appeal to select investment strategies, says Kaplan. “Recycling is more aligned with commodities volatility, whereas waste-to-value is closer to a hybrid fee-based and commodity-based revenue model; value propositions vary here,” he comments. “In addition, there is an onset of investors, including those focused on infrastructure, that, while interested in revenue quality, also put an increasing level of value on hard assets.” (For more on recycling M&A activity, see the sidebar “Will green yield green?”)
However, as sustainability and carbon emissions reduction have become more important for accomplishing landfill diversion goals in waste, “There are business models that have been created to adhere to zero waste or waste minimization policies that can [garner] a fee-for-service business model outcome,” Kaplan remarks.
Some of these new opportunities and several existing ones can be considered as niche sectors of the waste industry. Here, says Kaplan, often there is room for consolidation.
"Acquirers are still active and looking to invest in M&A, and valuations remain high,” –Andy Schwartz, managing director, Raymond James
He points to liquid wastes, energy sector byproducts, and nonhazardous and hazardous waste streams emanating from the utility, industrial and infrastructure markets as those where additional consolidation is likely, creating “a great strategy for capital markets to access.”
Veolia’s Cappadona sees the same thing, saying, “We continue to be interested in growing our hazardous and special waste business, and plan to do that with internal investments and select acquisitions.”
In an analysis of the third quarter earnings report of industrial waste services company Clean Harbors, Norwell, Massachusetts, Michael E. Hoffman of Baltimore-based Stifel writes, “The U.S. industrial economy [continues] to recover. Factor in significant cost controls enacted in response to the pandemic, and Clean Harbors handily beats consensus.”
The firm’s positive earnings report, writes Hoffman, “was done the old-fashioned way—improving business fundamentals on a leaner cost structure to drive better incremental margins.”
Kaplan says BGL is “very optimistic about the markets,” in part because of what the firm sees as long-term trends in capital migrating from public to private markets and what it views as the increasing efficiency of the private capital markets.
BGL is seeing a steady stream of transactions “across the board” in the waste sector, he says, pointing to the involvement of middle-market investors. “The movement from public equity investing to private equity and debt continues to gain attractiveness,” states Kaplan.
Schwartz expresses the same optimism, telling Waste Today, “Overall, deals are still getting done, acquirers are still active and looking to invest in M&A, and valuations remain high.”
This article originally appeared in the November/December issue of Waste Today. The author is a senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.
Brian Taylor
Posted by Megan Smalley
