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Companies within the Traditional Collection & Disposal vertical, specifically within MSW collection & hauling, have historically exhibited stable performance through economic downturns given the necessary nature of their service offerings and the contractual nature of their revenue base. While C&D revenue can be more cyclical and correlated with construction activity, that segment is often buoyed by government spending during a downturn, as will likely be the case with the pending $1.2 trillion IIJA infrastructure bill. Key investment considerations for Ironwood (both at entry and during our holding period) are i) a company’s access to favorably priced disposal outlets such as landfills with extended usable life, ii) investment in state-of-the-art transfer stations to maximize efficiencies when processing waste, and iii) demonstrated ability to purchase and integrate tuck-in acquisitions at favorable prices. These are key differentiators that attract both strategic and financial buyers and drive premium valuations. Companies must also be able to demonstrate their market position and service level to allow them to raise prices commensurate with the inflationary impacts discussed above. In addition to increasing labor and fuel costs, the industry is also seeing rising disposal costs, as ton-weighted average tipping fees for U.S. municipal solid waste landfills have increased 11% from 2021 to 2022, to $60.34 per ton1.
Ironwood’s approach to investing within the ES industry has also been to target geographies that have been experiencing robust economic development, as population growth and resulting construction drive increased waste generation in the region. These growth markets also present opportunities for M&A, as there is an ability to consolidate routes with other waste haulers and acquire businesses with complementary product offerings (e.g., roll-off services) to recognize unique synergy opportunities. One recent example within our portfolio is Pro Disposal, a vertically integrated waste management service provider within the growing South Carolina Lowcountry region, permitted to handle waste from initial collection, through its managed transfer station, to the final disposal. Our investment was to support the acquisition of a collection and hauling, transfer station, and landfill business, which allowed the company to achieve full vertical integration within its existing hauling geography. Ironwood recently exited this investment, as Pro Disposal merged with Coastal Waste & Recycling in July 2023.
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