Republic Services Overview
Republic Services is a US based company that was founded in 1998. It is a publicly traded company (ticker « RSG »), that operates in the waste management industry. The CEO is Jon Vander Ark and the owner of the company is Cascade Investment (.aka. major shareholder, owning 34.1%.)
The company specializes in providing services within different lines of businesses, like transfer & landfill, residential business, and recurring large container services. It successfully recorded a strong profitable growth, with 100 million tons of material handled annually, and 2 billion pounds of organic waste processed. The latter are located in over 73 recycling centers.
Republic Services has set three major goals for the year 2030. The first one is to reduce scope 1 and 2 green houses gases by 35%. The second goal is to increase the recovery of essential materials by 40% over a combined basis. Lastly, the company aims to increase by 50% its biogas reuse.
Republic Services has invested $1.3 billion in acquisitions and returned $2.7 billion in cash to shareholders over the last 3 years. There has also been an increase in annual dividend for 17 years. The results show that Republic Services has performed well over the past years, promising a positive outlook supported by the company’s acquisitions and its digital technologies.
US Ecology Overview
US Ecology is a US based company that is publicly traded (ticker « ECOL ») and founded in 1952. The current CEO of the group is Jeff Feeler. The company specializes in waste management and environmental services. It operates in five hazardous waste landfills.
It currently manages 38 pounds of waste at the company’s current facilities, which are supported by 34 waste facilities by 88 service centers in North America. Additionally, US Ecology holds over 12.8 thousand of emergency and spill responses with more than 50 thousand customer locations that manage waste via logistics and compliance.
The business model of US Ecology is divided into three segments, namely: waste solutions, field services and energy waste. As part of the model, the following segments are divided into base revenue and large event revenue. Base revenue is referred to as any type of revenue generated regularly, small roadside spills, rig waste or small cleanups with less than 1000 tons of waste. In contrast, the large event revenue refers to any type of large site cleanup that have volumes of waste greater than 1000 tons, large spill events, or larger service projects with revenue over $1 million.
Deal Purpose
The purpose of the deal is to increase the customer base and expand the businesses across United States and Canada.
Deal Outcome & Synergies
- The deal adds new waste vertical for oil and gas exploration and enables greater waste volumes throughout the Gulf region.
- NRCG to bring complementary services & customers to US Ecology.
- Expected upside for stockholders of NRCG and US Ecology.
- ROIC projected to exceed cost of capital in first full year, with an accretive transaction of $20 million, via realization of additional revenue and cross selling opportunities.
- Acquisition will add over 50 additional service sites, providing emergency response, industrial services and waste handline for a recurring base business through the US Ecology’s national service network.
- NRCG is to contribute $120 million to US Ecology’s adjusted EBITDA in the year subsequent to the acquisition.
Deal Summary
Figure 1: Deal Summary
Deal Structure
- All cash deal valued at $2.2 billion.
- Republic Services to offer $48 per share, representing a 70.4% premium to US Ecology.
- Expected $40 million cost synergies within 3 years after acquisition.
- The combined company’s adjusted free cash flow conversion expected to be at least 47% by 2024.
- Deal to be approved by the board of directors of both companies.
Accretive/Dilutive: Accretive
Expected Deal Close date: End of Q2, pending regulatory approval
Valuation Methodology
The valuation method used is a multiples valuation approach. The 20 companies chosen were based on the GICS of “solid waste collection and management services” with the geographical location in the United States of America. The companies 20 were narrowed down into four companies based on similar market caps, sector & services.
Table 1: Comparable Companies
Figure 2: Companies chosen for US Ecology Valuation
The estimated enterprise value of US Ecology using the EV/EBITDA multiples approach is shown to be approximately $2 billion.
Figure 3: Valuation of US Ecology using multiples
Sources:
https://www.wastedive.com/news/republic-services-us-ecology-environmental-solutions/618561/
https://www.reuters.com/business/environment/waste-disposal-firm-republic-services-buy-rival-us-ecology-22-bln-deal-2022-02-09/
https://www.barrons.com/articles/us-ecology-ecol-republic-services-acquisition-51644416162
https://www.bloomberg.com/news/articles/2022-02-09/republic-services-is-said-to-near-takeover-of-us-ecology
