Date: April 4, 2006
Source: Business Wire
Frenzied Buying Has Spurred 40% Increase in Valuations for Solid Waste Companies, Banker Says; Bidding by Private Equity and Hedge Funds a Major Catalyst, According to Morgan Joseph Corporate Finance Executive
04/04/2006 01:00:13 PM EDT
Business Wire
LAS VEGAS--(BUSINESS WIRE)--April 4, 2006--Market valuations for many privately owned solid waste companies have risen more than 40% in recent years, spurred by eager buyers among private equity firms and cash-rich hedge funds, an investment banker who specializes in the field told an industry conference here today.
John J. Quirk, a Managing Director with Morgan Joseph & Co. Inc., an investment banking firm headquartered in New York that focuses on middle market companies, said that the sharply higher valuations of privately owned solid waste companies are being spurred by an influx of private equity and hedge fund money seeking investments in the environmental area. "It has led to a frenzied deal environment, with too much equity chasing too few deals," he declared.
Mr. Quirk spoke at WasteExpo, North America's largest solid waste and recycling tradeshow serving both the private and public sectors. According to the National Solid Wastes Management Association, the industry generates more than $43 billion in revenues, approximately 76 percent by the private sector, and directly employs more than 367,000 people.
Going valuations today are approximately 6.5 times to 9.5 times EBITDA, or earnings before interest, taxes, depreciation and amortization, compared to a level of 4.5 times to 6.5 times just a few years ago, Mr. Quirk said. EBITDA is a commonly used measure of valuing solid waste companies. He pointed out that the activity is reflected in the stock prices of publicly traded solid waste companies, where, he said, six of the industry's seven largest companies are trading at 94% to 100% of their 52-week highs. "Over the past six months public solid waste companies have significantly outpaced the major market indices," Mr. Quirk added.
"Investors are attracted by the industry's solid characteristics, such as stable cash flows, its recession proof character and also that, even after a major consolidation period, the solid waste industry remains very fragmented," said Mr. Quirk, who was a principal at an environmental private equity fund before joining Morgan Joseph. He spoke at a panel discussion on Valuing a Solid Waste Business.
Mr. Quirk said acquisition opportunities also exist because major firms in the industry have significantly reduced their purchases of other companies and are focusing more on asset swaps. He pointed out that "significant opportunities" to build new solid waste platform companies have developed because there are available many senior managers with broad experience at major solid waste companies.
More information: www.morganjoseph.com.
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