Case study industry landscape by Sutherland Global Services

Case Study and Sample Slides Industry Landscape

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Industry Landscape •

The client was a boutique investment bank seeking information on the global waste management industry landscape for the sell-side pitch discussion, understanding industry dynamics and potential acquirers’ arena

•

The client engaged Sutherland to conduct research on the global waste management market and provide strategic insights and analysis of value chain, key players and overall market sentiments

THE CLIENT

PROJECT TASK

Approach & Solution

RESEARCH APPROACH & SOLUTION

•

Sutherland conducted an in-depth secondary research to understand the industry structure and leading players

•

The team analyzed several key factors such as industry size, trends, outlook and regulatory environment, highlighting market segmentation, size estimates and waste disposal hierarchy

•

Additionally, the team also provided a detailed analysis on the waste management value chain – comparing each country by income levels and global waste generation

•

Moreover, the team analyzed past M&A transactions in the industry to provide a valuation framework

Benefit to Client •

Sutherland’s research provided insights on the global waste management industry, which enabled the client in positioning the target appropriately. It also helped the client in understanding the industry and overall M&A trend within the industry, including areas of investments and potential buyers

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Global Waste Management Market Global Waste Management Market Size

Key Highlights •

The global waste management market is expected to reach USD562.0 Bn in size by 2020 from USD402.0 Bn in 2010, increasing at a CAGR of 3.4% – Growth is fueled by the sheer increase in quantity of waste generated globally and also by the enforcement of stricter environmental regulations, driving the need for more recycling programs and efficient waste management – The world cities generate 1.3 Bn tonnes per annum of solid waste, which is expected to increase to 2.2 Bn tonnes per annum by 2025 – The global solid waste management cost is expected to grow from USD205.4 Bn in 2010 to USD375.5 Bn in 2025

•

The 34 countries forming the Organization for Economic Co-operation and Development (OECD) account for 44.0% of the world’s waste generation, followed by East Asia & Pacific and LATAM regions – OECD countries generate 572.0 Mn tonnes of solid waste per year with an average of 2.2kg/capita/day

•

High-income countries produce the most waste per capita (46.0% of the global quantity), while low-income countries produce the least solid waste per capita

(USD Bn) 700 600

562 475

500

402 400 300 200 100 0 2010

2015

2020

– The total waste generation of the lower middle-income countries is higher than that of the upper middle-income countries, likely skewed as a result of inclusion of China and India, which display disproportionate waste generation rates

Waste Generation by Region South Asia 5% Middle East & North Africa 6% Eastern & Central Asia 7%

Waste Generation by Income Lower Income 6%

Africa 5%

OECD 44%

Other 18% High Income 46%

Lower Middle Income 29%

Organic 46%

Metal 4% Glass 5%

LATAM & Caribbean 12%

East Asia & Pacific 21%

Global Solid Waste Composition

Plastic 10% Upper Middle Income 19%

Paper 17%

Source: Statista.com, World Bank Report on Global Solid Waste Management – Mar’12

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Waste Disposal Hierarchy • •

•

The waste management sector follows a generally-accepted hierarchy, which responds to financial, environmental, social and management considerations Integrated Solid Waste Management (ISWM) reflects the need to approach solid waste in a comprehensive manner with careful selection and sustained application of appropriate technology, working conditions, and establishment of a ‘social license’ between the community and designated waste management authorities Municipal waste disposal techniques also vary per the income levels of the countries deploying waste management

Most Preferred Option

Waste Diversion Low-income Countries Waste Disposal

Other 26%

Reduce

Dumps 13%

Reuse

Upper Middle-Income Countries’ Waste Disposal Compost 1%

Incineration 0%

Recycled 1%

Dumps 33%

Recycle Incineration 1% Recycled 0% Compost 1%

Recover (digestion, composting) Landfills 59%

Landfill Incineration (with energy recovery)

Landfills 59%

Waste Disposal

Controlled Dump Least Preferred Option Source: World Bank Report on Global Solid Waste Management – Mar’12

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Waste Management Value Chain – Comparison by Country Income Levels

High Income

Middle Income

Low Income

Waste Treatment

Landfilling/ Dumping

Collection and Re-use

Recycling

Composting

• No organized programs • Sporadic and inefficient • Service is limited to high visibility areas and businesses willing to pay • High fraction of inerts and compostables impact collection – overall collection below 50%

• Majority of recycling is through informal sector and waste picking • Recycling markets are unregulated and include a number of ‘middlemen’ • Large price fluctuations

• Rarely undertaken formally even though the waste stream has a high percentage of organic material • Lack of awareness and market for composting

• Low technology sites usually open dumping of wastes • High polluting to nearby aquifers, water bodies and settlements • Waste regularly burned • Significant health impacts on local residents and workers

• Improved service and increased collection from residential areas • Larger vehicle fleet and more mechanization • Collection rate varies between 50% and 80%

• Informal sector still involved • Some high technology sorting and processing facilities • Recycling rates are relatively high • Recycling markets are somewhat regulated • Prices fluctuate considerably

• Large composting plants are often unsuccessful due to contamination and operating costs • Some small-scale composting projects at the community/ neighborhood level are sustainable

• Some controlled and sanitary landfills with some environmental controls • Open dumping is still common

• Collection rate greater than 90% • Compactor trucks and highly mechanized vehicles and transfer stations are common • Waste volume a key consideration • Aging collection workers often a consideration in system design

• Recyclable material collection services and high technology sorting and processing facilities are common and regulated • Increasing attention towards long-term markets • Overall recycling rates higher than low- and middle-income countries

• Becoming more popular at both backyard and large-scale facilities • Waste stream has a smaller portion of compostables than low- and middle-income countries • More source segregation makes composting easier

• Sanitary landfills with a combination of liners, leak detection, leachate collection systems, and gas collection and treatment systems • Often problematic to open new landfills due to concerns of neighboring residents

Source: World Bank Report on Global Solid Waste Management – March 12

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Selected M&A Transactions in Waste Management and Recycling Date

Acquirer / Target

Target Description

Rationale

Price (USD Mn)

Implied EV (USD Mn)

EV / Revenue

143.8

216.8

0.4x

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Provides solid waste management and disposal services to commercial and industrial customers

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The acquisition helps Agility expand product offerings

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Offers commercial and industrial waste recycling services

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The acquisition helps Lakeshore increase its footprint in Chicago as well as enhances its waste processing capacity

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Provides waste management and recycling solutions to industrial, commercial and construction companies

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The acquisition expands In-N-Out’s product portfolio in recycling related to construction and demolition of debris material

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Provides chemical and hazardous waste removal and disposal services as well as recycles fluorescent lamps

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The acquisition helps ERG Group expand its geographical presence in the UK

03/18/14

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Provides waste management and recycling services to municipalities, industries and businesses

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The acquisition expands Synergy Environmental’s product portfolio into waste management and recycling services

01/13/14

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Provides waste management and environmental services including medical waste disposal, solid waste and recycling of waste

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The acquisition helps Curtis expand its geographical footprint in New England markets

07/07/13

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Provides waste removal and disposal services for printing, photographic and healthcare industries

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The acquisition expands CSG’s geographical presence in East Anglia

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Provides waste plastic recycling services to construction and manufacturing enterprises

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The acquisition enhances Intergen Energy’s product portfolio for waste management and recycling services

10.7

05/22/13

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Provides construction waste management and recycling services to construction companies

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The acquisition will help Waste Haulers expand its existing offerings

02/25/13

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Provides medical waste disposal services

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The acquisition helps Curtis Bay expand its existing product portfolio in the Northeastern US market

06/23/14

06/03/14

Heartland Recycling

05/20/14

04/07/14

Hazchem Waste Disposal and The Lamp Recycling

05/28/13

KK Plastic Waste Management

Source: Capital IQ, Company Website

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Waste Management Industry – Key Players Top 10 Solid Waste Management Companies in the North America

Key Highlights •

The total volume of waste being handled by the licensed nonhazardous waste management facilities in the US grew to 621.5 Mn tons in 2011, up from 610.2 Mn tons in 2010 – The figures include Municipal Solid Waste (MSW) generation of 429.0 Mn tons, construction and demolition debris generation of 117.0 Mn tons and industrial and special wastes generation of 76.0 Mn tons – Of the 429.0 Mn tons of MSW generated, 141.0 Mn tons (33.0%) were recycled in 2011, up from 134.0 Mn tons (32.0%) in 2010

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Waste collection represented the largest segment in the US with USD34.0 Bn, accounting for 61.0% of industry revenues – Transporting and processing waste & recyclables accounted for USD6.0 Bn business in 2011, representing 11.0% of industry revenues – Waste disposal including landfilling (USD13.0 Bn) and waste-to-energy (USD2.7 Bn) comprise 28.0% of industry revenues

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The top three players in the US waste management industry accounted for 56.3% of the total market share – The publicly-traded companies together comprised 61.0% of the total revenues in 2011 – The private sector represented 78.0% of the industry, while the municipal sector controlled the remaining 22.0%

Rank

Company

Primary Focus

Revenue (USD Mn)

Recycling & Landfill

14,043

Waste Collection & Disposal

8,492

Waste Collection & Disposal

3,494

Waste Collection & Disposal

2,199

Waste Collection & Disposal

2,009

Waste Collection & Disposal

1,961

Waste Management & Energy Generation

689

Waste Collection & Disposal

Recycling

348

Waste Disposal and Recycling

497

US Waste Management Industry – Market Share (2011)

Others 43.7%%

Waste Management Inc. 24.9%%

Republic Services Inc. 19.6%% Covanta Holding Corporation 11.8%% Source: waste360.com – Waste Age 100 List (2013)

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