Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Consolidating the Waste Management Industry
Transcript
- Lucas: You know that moment when you put the trash can out on Tuesday morning and you don't think about it again until you pull the empty can back in? That moment is a $90 billion industry in the United States. And private equity is quietly rolling it up faster than almost any other sector we have covered. Luna: I have to admit, I never thought much about who actually owns the trucks that pick up my trash. I assumed it was the city, or maybe a big national company. Lucas: That assumption is exactly what the PE playbook exploits. Most people think of waste as a municipal service or a duopoly of giants like Waste Management and Republic Services. But the reality is that something like 60 percent of commercial and residential waste in the US is still hauled by independent operators — family-owned companies with maybe a dozen trucks, running routes that have been passed down for two or three generations. Luna: And those are exactly the targets PE firms love: fragmented, cash-flow stable, and run by owners who are ready to retire. Lucas: Exactly. The canonical example right now is GFL Environmental. They started in 2007 with one truck in a small town in Ontario called Bracebridge. Founder Patrick Dovigi had been a garbage man in college, saw the fragmentation, and started buying up small haulers one by one. By 2020 they went public on the Toronto Stock Exchange and the New York Stock Exchange. Today GFL is a $30 billion company with over 200 acquired businesses under its belt. Luna: Two hundred acquisitions in under 20 years. That is a staggering pace. And they're still buying. Lucas: Still buying. In February of this year they announced the acquisition of a waste to energy facility in Quebec. The month before that they picked up a recycling operation in Michigan. The pace hasn't slowed because the logic of the roll-up is so compelling. Waste is the ultimate recurring revenue business. Commercial customers sign three-to-five-year contracts. Residential customers don't change haulers unless they move. Churn is under 5 percent annually. Luna: So it's almost like an annuity. But what makes the roll-up work financially? I mean, you're buying a bunch of small companies — there must be significant operational overlap. Lucas: The margin uplift comes from route density. If you have two separate haulers running trucks on the same street on different days, you are burning double the diesel and double the labor. Combine them into one route, one truck, one driver, and your margin jumps from maybe 8 percent to 15 or 18 percent. That's the arbitrage. A PE firm pays maybe 6 to 8 times EBITDA for a family hauler, consolidates the routes, and the combined entity trades at 12 to 14 times. The math works even before you add any pricing power. Luna: And pricing power is real because trash is non-discretionary. People will always have garbage. Recessions barely dent volume. In 2020, waste volumes actually increased as people stayed home and cleaned out their garages. Lucas: That recession-proof quality is why infrastructure and PE funds love the space. Brookfield Asset Management, one of the largest alternative asset managers in the world, has been piling in. They bought a controlling stake in a large waste platform in the UK called Biffa a few years ago. In the US, funds like Trilantic North America and HPS Investment Partners have backed regional consolidators. The capital is flowing because the thesis is ironclad: buy small, combine routes, raise prices modestly above inflation, and collect the cash for decades. Luna: But what happens to the local owner who sells? Do they stay on or exit completely? Lucas: Most stay for a transition period — typically two to three years. The acquiring firm needs the owner's relationships with the town council, the commercial landlords, the local transfer station. But after that, they often retire or move on. Some regret it. I talked to a hauler in upstate New York who sold his company to a pe backed roll-up in 2021. He got a good price, but he said the new management raised rates on long-time customers by 25 percent within 18 months. He felt like he had sold out his community. Luna: And that's where the pushback comes in. There have been antitrust concerns, especially in states like California and New York, where the market is getting concentrated fast. The California legislature introduced a bill last year that would require enhanced disclosure for waste M&A deals above a certain size. Lucas: The concern is that when three or four companies control 80 percent of a regional market, prices for small businesses and municipalities go up. A 2024 study from the University of California found that in markets where a pe backed consolidator had acquired more than 50 percent of independent haulers, commercial collection rates were 18 percent higher than in more fragmented markets. That is a real cost that gets passed to consumers and local businesses. Luna: So there is a tension: the roll-up creates efficiency and higher margins for investors, but it also reduces competition and can lead to price increases. Is there a middle ground? Lucas: Some PE firms are trying a different model — the 'platform and tuck-in' approach where they keep the local brand and management team intact, and only centralize back-office and route optimization. That can preserve some of the local feel while still capturing the route density gains. The key is whether they can resist the temptation to jack up prices too quickly. If they push too hard, they invite regulation, which is exactly what the industry doesn't want. Luna: Let's zoom out. You mentioned the big three public companies — Waste Management, Republic Services, and Waste Connections. Where do they fit in this PE story? Lucas: They are the ultimate exit. When a pe backed roll-up grows to a certain scale, the most likely acquirer is one of those three. Waste Management alone has done over 100 acquisitions in the last decade. Republic has been active too. So the PE firms are essentially building companies that the public giants then buy. It's a two-step process: first, PE consolidates the independents, then they sell the platform to a strategic buyer at a higher multiple. Luna: That's the classic build-to-flip. But we've also seen some PE firms hold onto their platforms longer and even take them public, like GFL. Lucas: Right. GFL is a rare case where the PE backers — BC Partners and the Ontario Teachers' Pension Plan — stayed in through the IPO and beyond. They've made a fortune. But the typical timeline is five to seven years. Acquire, consolidate, grow EBITDA, then sell to a Waste Management or Republic. That's the playbook. Luna: Is there any sub-sector within waste that is particularly hot right now? I've heard about medical waste and e-waste. Lucas: Medical waste is definitely a growth area. It's higher margin because it requires specialized handling and disposal. Companies like Stericycle, which was acquired by a consortium of PE firms in a $7.2 billion deal last year, dominate that space. E-waste is also growing fast, driven by the proliferation of electronics and stricter recycling regulations. But the bread and butter remains municipal solid waste — the stuff in your kitchen bin. That's where the volume is. Luna: And where is the opportunity for a listener who might be a small hauler thinking about selling? What should they look for in a buyer? Lucas: Three things. One: the buyer's track record with local brands. Do they rebrand everything under their corporate logo or do they keep the local name? Two: the retention period for employees. A lot of family-run haulers care about their drivers, who may have been with them for decades. Three: the price escalation clause in the contract. Some buyers will offer a higher upfront price but then push through aggressive rate increases that hurt the seller's reputation. The best advice is to hire an advisor who specializes in waste M&A — there are a handful of boutique firms that do nothing else. Luna: One thing I find fascinating about this space is that it is so invisible. We see the trucks, but we don't see the ownership changes. And yet, this industry touches every single person in the country every week. Lucas: It's the perfect example of the quiet consolidation of essential services. And speaking of things that quietly support the show — listener support is what keeps episodes like this ad-free and independent. We don't run commercials, we don't have sponsors reading mid-roll copy. It's just the two of us, a microphone, and the research. If these conversations have moved your work forward in some small way, you can find us at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, but it helps keep the lights on and the research budget alive. Luna: Yeah, and we genuinely appreciate every bit of support. It allows us to dig deeper into these roll-up stories that don't get mainstream attention. Lucas: Exactly. So back to waste — the other big trend is the landfill capacity crunch. Landfills are getting harder to permit. In the Northeast, landfill capacity has declined by about 20 percent over the past decade. That means the companies that own landfills have immense pricing power. PE firms are now buying landfills outright, not just hauling companies. It's a vertical integration play: own the hole in the ground, own the trucks that fill it, and you capture margin at every step. Luna: So the next wave might be less about rolling up haulers and more about acquiring landfill assets? Lucas: Exactly. And that's where the real moat is. You can't easily build a new landfill. The permitting process takes five to ten years and costs tens of millions. So existing landfills are natural monopolies. PE firms are paying 15 to 20 times EBITDA for them, which is high, but the scarcity premium is real. We are going to see more of that in the next five years. Luna: I want to ask about the workforce. Trash collection is a tough job — early mornings, physical labor, exposure to the elements. How does the roll-up affect workers? Lucas: It's mixed. On one hand, larger companies can offer better benefits, 401 plans, and safety training. On the other hand, they often push for productivity gains — more stops per hour, longer routes — which increases stress and injury risk. Driver turnover in the industry is high, around 30 to 40 percent annually. Some of the better pe backed platforms have invested in automated side-loader trucks that allow a single driver to handle a route without a helper, which improves safety but also reduces headcount. Luna: So the same story we've seen in other roll-ups: efficiency gains come partly at the expense of labor. Lucas: Inevitably. But waste is one of those industries where the public has very little sympathy for the companies — they just want their trash gone. And that creates a business environment where consolidation is likely to continue until the industry looks more like telecom: a few big players and a fringe of very small niche operators. Luna: Where do you see this in five years? Will the independent hauler be extinct? Lucas: Not extinct, but their share will shrink from 60 percent to maybe 30 percent. The independents that survive will be the ones in very rural areas where route density is too low for a big company to bother with, or the ones that specialize in a niche like construction debris or hazardous waste. The middle ground — the 20-truck operator in a mid-sized city — that's the sweet spot for acquisition. That's where the PE action will remain hottest. Luna: And that's the segment that listeners should watch if they want to spot the next GFL. Lucas: Exactly. Keep an eye on the regional players in the Sun Belt and the Pacific Northwest. Those are the markets with population growth, which means more trash, which means more opportunities for roll-ups. The thesis is simple: people will always generate waste, and someone will always need to haul it away. Private equity has figured out that the best way to profit from that inevitability is to own the routes.