insider - bgl · 2019. 6. 12. · mergers & acquisitions activity trends in valuation...

B G L C O . C O M M A R C H | 2 0 1 9

ENVIRONMENTAL & INDUSTRIALSERVICES

M A R K E T H I G H L I G H T S

M & A H I G H L I G H T S

I N D U S T R Y S P OT L I G H T

I N D U S T R Y M E T R I C S

A B O U T U S

TA B L E O F C O N T E N T SEFFRAM E. KAPLANMANAGING DIRECTOR & GROUP [email protected]

MICHAEL T. VINCIGUERRA [email protected]

REBECCA A. DICKENSCHEIDTDIRECTOR OF [email protected]

3

5

1 6

3 8

4 0

INSIDER

2

A LETTER TO OUR READERSFor nearly a decade, the BGL Environmental & Industrial Services (EIS) investment banking team has been informing the industrial and capital markets communities of the numerous opportunities within the Environmental Services sector. We have done so through the Environmental Services Insider, in which we strive to deliver insightful and thought-provoking content on various Environmental industry sub verticals, including waste, recycling, and consulting.

As you may not be aware, the scope of our M&A and capital markets advisory work spans the much broader Industrial Services landscape. Efforts by large strategics to grow above inflation have led them to seek opportunities beyond the status quo. Further, many subsectors of Industrial Services remain fragmented and regional in nature, offering opportunities to buy-and-build national-scale service platforms. Given these market dynamics and demand for more comprehensive industry coverage, we are expanding our research to address these developments. Areas in which we have extensive advisory experience and will now research in greater depth include Plant Maintenance & Turnaround Services, Equipment MRO, Utility Services, Infrastructure Services, Commercial Services, and Transportation & Logistics, among others. Rebranded as the EIS Insider, our new research offering reflects a more robust and expansive view of this dynamic industry.

Our commitment to the Environmental Services market is steadfast. We remain very active in the sector, supported by a tenured team that I continue to lead and grow. Our recent engagements reflect our dedication to the EIS marketplace, with representation from many of the industry’s most active corporate and private equity investors.

We trust that you will enjoy this inaugural EIS Insider, which takes a deeper dive into developing trends within the Underground Infrastructure market.

Kind regards,

Effram KaplanCo-Head IndustrialsHead of Environmental & Industrial Services

MARKET HIGHLIGHTS

MIDDLE MARKET

The middle market had a strong finish to 2018 with transaction activity up more than 30 percent in 4Q 2018. A total of 2,028 transactions were announced in 2018, representing a 10.3 percent increase over 2017. Deal value was up 15.6 percent year-over-year.

The debt capital markets continue to remain robust. In December 2018, Standard & Poors Leveraged Commentary & Data (S&P LCD) reported senior leverage (senior debt to EBITDA) of 5.06x in the lower middle market, marking the ninth consecutive month that senior debt exceeded 5.0x in 2018. This compares to a senior debt multiple of 4.85x in December 2017.

3 E I S I N S I D E R | M A R K E T H I G L I G H T S

M&A & CAPITAL MARKETS ACTIVITY

ENVIRONMENTAL & INDUSTRIAL SERVICES

Environmental and Industrial Services M&A activity remains healthy, with 181 transactions in 2018 (179 transactions in 2017). Engineering & Consulting (E&C) and Special Waste led deal activity with 46 percent and 43 percent of deal flow, respectively, for the period—up from 34 percent and 30 percent a year ago.

Notable financial sponsor deals in E&C include the acquisition of Apex Companies by Sentinel Capital Partners, and TRC Companies, backed by New Mountain Capital, which completed three add-ons in 2018. Acquisitive Stantec (TSX:STN) acquired Occam Engineers.

In Special Waste, GFL Environmental acquired Future Environmental, its first major acquisition in the U.S. liquid waste market. Clean Earth, backed by Compass Diversified Holdings, completed three add-on acquisitions in 2018. US Ecology (NASDAQ-GS: ECOL) completed the acquisitions of Ecoserv Industrial Disposal and ES&H of Dallas.

Median EBITDA multiples for strategic and financial buyers were 9.06x and 10.15x (November 2018) on transactions valued between $250 and $500 million. The median strategic multiple for transactions valued less than $250 million was 8.47x.*

The strong capital markets environment is continuing into 2019 with middle market senior leverage of 4.96x in January and a median EBITDA multiple of 8.46x for transactions valued less than $500 million.

*Financial buyer multiple not reported due to a limited number of observations during period

Industrial Services saw robust sponsor activity, including new platform acquisitions by J.F. Lehman & Company (Inland Pipe Rehabilitation), RLJ Equity Partners (Pro-Vac), Cotton Creek Capital Management (Vecta Environmental Services), and O2 Investment Partners (1 Priority Environmental Services). HEPACO, NRC, HydroChemPSC, and QualTek USA were among the sponsors to complete add-ons. Clean Harbors (NYSE:CLH), Mistras Group (NYSE: MG), Primoris Services Corporation (NasdaqGS: PRIM), and ASRC Industrial Services were among the active corporate buyers.

Solid Waste saw robust deal flow in the fourth quarter. Headlining deal activity was GFL Environmental’s $2.8 billion acquisition of Waste Industries USA, completed in November. In December, Waste Connections (NYSE:WCN) acquired American Disposal Services. Gold Medal Group, backed by Kinderhook Industries, acquired Apple Valley Waste. 2019 is off to a strong start with the acquisitions of Wheelabrator and Tunnel Hill Partners by Macquarie Infrastructure Partners, announced in February.

M A R K E T H I G H L I G H T S | M & A H I G H L I G H T S | I N D U S T R Y S P OT L I G H T | I N D U S T R Y M E T R I C S | A B O U T U S

4 E I S I N S I D E R | M A R K E T H I G H L I G H T S

MARKET HIGHLIGHTS

PUBLIC EQUITY MARKETS

The public equity markets are rebounding amid volatility brought on by ongoing trade disputes with year-over-year returns for the S&P 500 and DJIA of 4.7 percent and 5.8 percent, respectively. Year-to-date, the S&P 500 and DJIA are up 11.7 percent and 11.5 percent, respectively.

Public Solid Waste companies speak to volume and pricing growth, citing continued strength in E&P waste activity. Recycling is continuing to face cost pressures, negatively impacting margins.

Brent spot prices are forecasted to average $61 per barrel (b) in 2019 and $62/b in 2020, according to estimates reported in the February 2019 Short-Term Energy Outlook from the U.S. Energy Information Administration (EIA). The average price was $71/b in 2018. The EIA is projecting U.S. crude oil production of 12.4 million b/d in 2019 and 13.2 million b/d in 2020. The average in 2018 was 10.9 million b/d.

OPERATING HIGHLIGHTS

BGL Environmental & Industrial Services composite indices are outperforming the broader market year-to-date, led by Special Waste with a 19.9 percent return and Engineering & Construction with 19.5 percent.

Public participants involved in Special Waste are reporting strong growth across the environmental, industrial and field services, and energy segments, supported by continued strength in the economy and gains in industrial production. Favorable trends in pricing and volume mix were also cited. Industrial Services players are reporting growing backlogs and broad-based demand, highlighting strength in the power, chemical, and oil and gas end markets. Participants maintain a bullish outlook with infrastructure needs expected to support continued growth into 2019.


5 E I S I N S I D E R | M & A A C T I V I T Y

M&A ACTIVITYOVERALL M&A ACTIVITY

Sources: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.

Middle Market M&A Activity Private Equity Transaction Activity

Mergers & Acquisitions Activity

Trends in Valuation

Acquisition Financing Trends

Total Leverage Equity Contribution

SOURCE: Standard & Poors LCD.

*NA: Data not reported due to limited number of observations for period. *NA: Data not reported due to limited number of observations for period.SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.

Transactions with Strategic Buyers Transactions with Financial Buyers

Transaction Count by Deal Size

Middle market enterprise values between $25 million and $500 million. Middle market enterprise values between $25 million and $500 million.

EBIT

DA

Mul

tiple

Tota

l Deb

t to

EBIT

DA

EBIT

DA

Mul

tiple

Equi

ty C

ontr

ibut

ion

(%)

Middle Market M&A Activity

SOURCE: PitchBook.SOURCE: S&P Capital IQ.Based on announced deals, where the primary location of the target is in the United States.Middle market enterprise values between $25 million and $500 million. NOTE: Buyout activity only

4.8x

5.4x

4.1x

3.6x

4.1x4.3x

4.5x4.7x 4.7x 4.8x 4.7x

4.9x5.1x 5.1x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19

38%

35%

46%

51%

47%

43%

41% 40%

37%

44%42%

39%38% 38%

25%

30%

35%

40%

45%

50%

55%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19

119 148

125

151

106 14

115

614

510

713

214

811

458 97 96 13

110

012

214

113

412

0 166

163

154

137

160

164 23

514

716

1 192

199

161 21

723

125

023

222

724

022

818

319

921

022

817

618

914

716

716

613

9 178 21

3

207 21

921

4 240

207 22

221

1 268

191 20

7 233

113

9112

011

119

714

5 161 23

420

416

823

022

621

417

6 211

188

307

208 22

7 248 28

623

325

5 328 35

528

327

0 305

334

261 27

125

8 310

234 23

925

322

5 266

234

278 31

0

6566

5963

6267 63

6336

5843

1919

26 3540

3242

5861

5563 68

5342

54 5069

3946

6079

4982

7370

60 5377 68

5477 51

6144

5349 63

5948

6770

$0

$10

$20

$30

$40

$50

$60

$70

$80

0

100

200

300

400

500

600

700

800

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Transaction Value ($ in billions)

Num

ber o

f Tra

nsac

tion

s

$25M-$50M $50M-$250M $250M-$500M Trans Value

7.2x

8.3x

6.5x 6.6x

6.3x

8.2x

8.1x 8.

5x

8.2x

8.0x

8.0x

7.4x 7.

7x

7.7x

9.1x

8.7x

7.9x 8.0x8.

5x

9.9x

9.4x

7.5x

8.5x 9.

1x

8.7x

8.7x

9.9x

10.1

x

9.9x 10

.5x

10.5

x

9.5x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x

14.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19

<$250 million $250-$499 million $500 million+

8.2x

6.8x

7.1x

9.8x

8.0x

7.6x 7.7x

8.6x 8.7x 9.

2x

7.4x

7.2x

8.5x 8.6x8.7x

9.4x

8.4x

7.6x

9.2x 9.

5x

8.9x

8.7x

10.1

x

11.4

x

11.2

x

9.1x 9.2x

10.0

x

9.1x

10.2

x

8.2x

9.5x 9.

7x

9.7x

8.5x

9.1x

9.8x 10

.3x

9.6x 10

.3x

10.5

x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x

14.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19

<$250 million $250-$499 million $500 million+

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Under $25M $25M-$100M $100M-$500M $500M-$1B $1B-$2.5B $2.5B+

NA

*

NA

*

NA

*N

A*

NA

*

NA

*

NA

*

NA

*

NA

*N

A*

NA

*



M&A ACTIVITYINDUSTRIAL SERVICES

In February 2019, Hoffman Southwest, an ORIX Capital Partners portfolio company, acquired Tri-State Utilities. Chesapeake, Virginia-based Tri-State extends HSW’s service reach in the Mid-Atlantic and Southeast. The company provides trenchless repair, rehabilitation, inspection, and other maintenance services to the municipal utility market, including pipe cleaning, CCTV inspection, smoke and dye testing, grouting, HDPE slip-lining, and trenchless pipe lining. Tri-State marks the first add-on acquisition for HSW since its acquisition by WEP in January 2017.

In January 2019, ASRC Industrial Services (AIS), a wholly-owned subsidiary of Arctic Slope Regional Corporation (ASRC), completed the acquisition of K2 Industrial Services (K2). Texas-based K2 provides industrial cleaning and multi-craft services to industrial, oil and gas, power, and commercial customers in the Midwest, California, and Gulf South. AIS CEO Greg Johnson commented on the acquisition: “Adding K2’s capabilities to AIS’s existing portfolio is further evidence of ASRC’s commitment to pursuing the AIS vision of building an enduring, employee-centric, customer-focused, value-added service provider focused on the industrial market complex.”

In January 2019, HEPACO, a portfolio company of Gryphon Investors, acquired PetroChem Recovery Services from Succession Capital Partners. PetroChem provides environmental consulting and remediation services the Mid-Atlantic region. The company offers a comprehensive suite of services, from emergency response to spill incidents in addition to hazardous material stabilization and packaging, facility decontamination, and hazardous waste transportation and disposal. Customers include large industrial, government agencies, small business, and residential clients. PetroChem is based in Norfolk, Virginia. HEPACO Chairman and Gryphon Operating Partner Phil Petrocelli commented on the acquisition, saying: “We are excited to continue our successful acquisition strategy with the PetroChem transaction. We anticipate continuing HEPACO’s expansion through new geographies and greater coverage density in attractive markets.”


HEPACO completed two acquisitions in 2018, Environmental Management Specialists (EMS) in December and Trans Environmental in October. Cleveland, Ohio-based EMS provides emergency response, remediation, and environmental services with a service footprint that includes 11 locations in Ohio, Indiana, Pennsylvania, and Kentucky. Commenting on the transaction, HEPACO CEO Ken Smith said, “This transformational acquisition will immediately expand our ability to serve clients across the Midwest, and we look forward to providing best-in-class emergency response and environmental service solutions to HEPACO and EMS customers across our growing footprint.” Loves Park, Illinois-based Trans Environmental provides environmental remediation, industrial cleaning, and emergency response services and expands HEPACO’s service footprint into the greater Chicago area.

In December 2018, J.F. Lehman & Company (JFLCO) acquired Inland Pipe Rehabilitation (IPR). IPR provides trenchless pipe rehabilitation solutions and technology to the municipal wastewater and storm water markets. Glenn Shor, a Partner with JFLCO, commented on the investment: “We believe IPR has significant opportunities for growth given the increasing demand for efficient, cost-effective solutions to service the critical, but aging, municipal wastewater and storm water infrastructure.”

In December 2018, HydroChemPSC, a portfolio company of Littlejohn & Company, acquired CARBER, a Texas-based provider of inspection and specialty mechanical service solutions. Platte River Ventures exited its eight-year investment in the sale. “The acquisition of CARBER, the recognized leader in cut, isolation, and weld testing services will fill out HydroChemPSC’s suite of specialty mechanical services, which includes leak detection and repair (LDAR), online leak repair, hot tap/line stop, bolting, and field machining,” said HydroChemPSC CEO Brad Clark. CARBER is the fourth add-on with backing from Littlejohn, which acquired the company in 2014.




M&A ACTIVITYINDUSTRIAL SERVICESIn December 2018, Mistras Group (NYSE: MG) acquired Onstream Pipeline Inspection from Novacap in a transaction valued at $142.1 million. Onstream provides pipeline inspection and data analytics services and has a leading position in the small- to mid-bore pipeline inspection market in North America. The company has achieved annual growth in excess of 20 percent annually over the past five years, according to Mistras. Mistras CEO Dennis Bertolotti, commented on the transaction: “The acquisition of Onstream is an ideal opportunity to diversify our business. It will enable us to leverage our strength in the midstream market and accelerate our growth by accomplishing our strategic initiative to add a pipeline integrity pillar to our service portfolio. Onstream is also a technological innovator, with a growing proportion of its revenues derived from new markets and services.” Transaction Multiple: 5.3x Revenue

In December 2018, RLJ Equity Partners acquired Olson Brothers Pro-Vac (Pro-Vac), a leading provider of environmental, infrastructure, and municipal services in the Pacific Northwest. Peninsula Capital Partners and Silver Peak Partners exited their three-year investment in the sale. Pro-Vac offers a comprehensive suite of services including hydroexcavation, storm and sewer maintenance, pipe/line jetting, industrial vacuum cleaning, CCTV inspection, commercial sweeping, tank rental, and other specialty services to a diverse base of contractor, utility, municipal, and manufacturing customers in its region. BGL’s Environmental & Industrial Services Group served as the exclusive financial advisor to Pro-Vac in the transaction.

In November 2018, QualTek USA, a portfolio company of Brightstar Capital Partners, acquired Recovery Logistics (RLI) and sister company, Site Resources (SRI). BGL served as the exclusive financial advisor to RLI in the transaction.

RLI is a leading national provider of essential business continuity and disaster recovery services to the power utility and telecommunications markets. RLI’s comprehensive suite of support services includes logistics, auxiliary power and fuel resources, temporary housing and basecamp infrastructure and support facilities, clearing and access work, and restoration of telecommunication network towers and related equipment. SRI provides cell site installation, upgrades, repairs, and maintenance of wireless network infrastructures and often works in conjunction with RLI on disaster recovery efforts.

The company is headquartered in Apex, North Carolina. QualTek’s CEO, Scott Hisey, commented on the acquisition: “We are very excited to acquire a company that expands our full suite of turnkey services, providing critical support to customers across the power and telecommunications industries. We believe there is a significant opportunity to leverage their platform to QualTek’s customers while continuing to build out the full suite of services to the power industry.

In October 2018, Tailwind Capital completed a $39.6 million growth equity investment in Loenbro, a provider of pipeline construction services. The company offers industrial construction services such as pipeline expansion, repair and maintenance, pipeline integrity inspections; oilfield services such as installation and repair of tanks, flow lines, and containment systems; tank battery installation and maintenance; and industrial insulation services such as industrial insulation and fireproofing.

In October 2018, ACON Investments acquired Fleetwash from DFW Capital Partners. New Jersey-based Fleetwash provides professional cleaning services to truck fleets and facilities such as gas stations and grocery stores. The company serves more than 6,000 customers from 56 branches across the country. “Fleetwash is led by a passionate management team with a proven track record of innovation and growth,” said ACON Partner Mo Bawa. “We see a highly scalable platform with significant room for continued growth, both organically and through add-on acquisitions.” Ken Brotman, Founding Partner of ACON, added: “Fleetwash is a market leader in a fragmented space that has leveraged its core fleet washing capabilities into higher growth facility cleaning services to capitalize on macro trends around greater environmental compliance, food safety and non-core service outsourcing.”



M&A ACTIVITYINDUSTRIAL SERVICES


In October 2018, Clayton, Dubilier & Rice (CD&R) acquired PowerTeam Services from Kelso & Company. PowerTeam is a leading provider of maintenance and construction services to regulated utilities in the southeastern and midwestern United States. The company provides services to maintain, repair, upgrade, and install natural gas and electric distribution and transmission systems. PowerTeam’s service network spans 42 locations in 21 states. Natural gas systems account for roughly two-thirds of revenue, of which more than 70 percent is derived from distribution infrastructure. Brian Palmer, whose professional background includes 30 years at General Electric, will lead the company as CEO. “PowerTeam’s demonstrated ability to deliver safe, reliable, and high-quality services to its utility customers provides a strong platform to accelerate growth and expand the company’s geographic footprint,” said CD&R Partner Nate Sleeper. “We look forward to supporting the business through its next phase of growth, while continuing to provide customers with exceptional service levels.”

In October 2018, Cotton Creek Capital Management completed the acquisition of Vecta Environmental Services, in partnership with management. The current management team, led by CEO Chad Kalland, will remain in place post-transaction. Vecta provides a full suite of industrial and environmental services to chemical, industrial, utilities, and oil and gas midstream customers along the U.S. Gulf Coast region. Services include hydro-blasting, vacuum truck, tank cleaning, hydro-excavation, and insulation and scaffolding. The company operates three facilities in Louisiana and Texas.

Vecta completed its first add-on acquisition in November 2018 with Polaris Services, adding locations in New Mexico and Oklahoma. With the acquisition of Polaris, Vecta’s service area increases to six locations in four states, making it one of the largest privately held hydro-excavation fleets in the United States, according to a company statement.

In June 2018, Gryphon Investors acquired Shermco Industries, a provider of electrical testing, maintenance, and repair services to a diverse base of utility, industrial, and energy customers in North America. Oaktree Capital Management exited its investment in the sale. Oaktree completed three add-on acquisitions during its ownership, after acquiring the company in 2012. Gryphon Partner Alex Earls commented on the investment: “Shermco

fits squarely within Gryphon’s strategy of acquiring growing, differentiated market leaders in industries with attractive long-term fundamentals…We are excited to…support the company’s continued growth both organically and through acquisitions.” In May 2018, National Response Corporation (NRC), a portfolio company of J.F. Lehman & Company (JFLCO), acquired SWS Environmental Services from ShoreView Industries. SWS provides environmental, industrial, and emergency response services in the Southeast, Gulf Coast, and Midwest. The company operates more than 20 locations in 17 states. SWS marks the tenth add-on acquisition for NRC under the ownership of JFLCO, which acquired the company in 2012.

Commenting on the acquisition, NRC CEO Paul Taveira, said, “SWS is highly complementary to our existing U.S. footprint with virtually no overlap. It strengthens our national capabilities and our geographic reach, enhancing our ability to provide a full suite of specialized services to our national and regional customers.”

In May 2018, O2 Investment Partners completed the acquisition of Fort Worth, Texas-based 1 Priority Environmental Services, a leading provider of abatement, indoor air quality, and decontamination services for asbestos, lead-based paint, and other hazardous materials in the Southern United States. The company operations from locations in Texas, Louisiana, and New Mexico. Commenting on the platform investments, Luke Plumpton, a Partner at O2 Investment Partners, said, “Gary Caldwell, Heath Watson, and Rob Odom have built 1 Priority into one of the premier asbestos abatement and indoor air quality remediation companies in the country. We are thrilled to partner with them and look forward to building on the company’s impressive historical growth trajectory to expand the platform into new geographies.”

In May 2018, Warren Equity Partners completed the acquisition of Superior Industrial Maintenance Company (SIMCO). SIMCO, a provider of corrosion protection services for mission critical assets in the power plants, chemical plants, commercial aviation facilities, military bases, food and beverage processing facilities, and water treatment facilities. The company’s primary services include industrial coatings and lining applications, inspection and maintenance services, and lead and asbestos abatement. SIMCO will serve as the foundational asset for a buy-and-build strategy in industrial coating services. Warren Equity stated plans to further expand SIMCO’s offerings and geographic reach.




M&A ACTIVITYSPECIAL WASTEIn March 2018, EnviroServe was acquired by Savage Industries. With the acquisition, Savage expands its environmental services capabilities and geographic reach, adding two locations in Ohio and West Virginia. EnviroServe provides remediation, testing, removal, packaging, transportation, and disposal of hazardous, nonhazardous, universal, and recyclable wastes and materials. Other services include underground tank removal and cleaning, PCB transportation and disposal, and facility cleanup and closures. The acquisition builds upon the acquisition of Sunpro in February 2017. BGL’s Environmental & Industrial Services Group was the exclusive financial advisor to EnviroServe in the transaction.

In March 2018, Primoris Services Corporation (NasdaqGS: PRIM) acquired specialty energy infrastructure contractor Willbros Group in a transaction valued at $157 million. The company provides comprehensive engineering, construction, maintenance, repair, and restoration solutions to utility, natural gas, and renewable customers. Primoris CEO David King, commented: “We are particularly excited about adding the UTD business and its electric-focused solutions, which are highly complementary to our natural gas utility service offerings. We also see opportunities for value creation in Willbros’ oil field services group and look forward to working with the management of the Canadian and Lineal business units to make positive contributions.” Transaction Multiples: .18x NTM Revenue and 6.15x NTM EBITDA

In February 2018, Clean Harbors (NYSE:CLH) acquired the U.S. Industrial Cleaning Services Division of Veolia Environmental Services North America in a $120 million all-cash transaction. The acquisition builds upon its existing service footprint, adding scale and capabilities in the Gulf Coast and an expanded Midwest presence. The Division operates from 60 locations across the United States, supported by a fleet of specialized equipment and vehicles of more than 600 units. BGL’s Environmental & Industrial Services Group was the exclusive financial advisor to Veolia in the transaction.

Clean Harbors CEO Alan McKim commented on the acquisition, “The addition of Veolia’s U.S. Industrial Cleaning Services Division to our business will enable us to more rapidly grow our presence in the specialty industrial services market. Its operational footprint, which complements our North American network, will provide us with greater scale and density in key U.S. regions such as the Gulf Coast and will open new industrial markets within the Midwest. This acquisition also further diversifies our base of blue-chip customers, many of whom

have long-standing relationships with Veolia. In addition, we expect this acquisition will drive more waste volumes into our disposal network of incinerators, landfills and other waste treatment facilities.” Transaction Multiple: .57x Revenue

In February 2018, Miller Environmental Services, a portfolio company of Trinity Hunt Partners, acquired Belco Industrial Services, a supplier of specialty industrial services in Texas and Louisiana. With the acquisition, Miller expands its services into the chemicals market and broadens its capabilities with the addition of Belco’s mechanical and linings & coatings divisions. “The partnership with Belco represents a compelling opportunity to significantly expand our service offerings to refineries and petrochemical, specialty chemical, and midstream customers throughout the Gulf Coast,” said Kevin Trant, CEO of Miller Environmental. “We are excited to add Belco’s employees and customers to our organization and are impressed by the growth trajectory of their business.” Trinity Hunt Partners acquired Miller Environmental in 2014. Belco is the first add-on acquisition under its ownership.

SPECIAL WASTE

In November 2018, GFL Environmental acquired Future Environmental, marking its first major acquisition in the U.S. liquid waste market, establishing a new platform for growth. BGL’s Environmental & Industrial Services team served as the exclusive financial advisor to Future Environmental in the sale.

Future provides environmental services to the petroleum, pipeline, utility, and chemical markets in the Midwest. The company’s Industrial Services Division provides scheduled maintenance and emergency response environmental services for a diverse group of pipeline, utility, and chemical companies. Future operates from 14 sites across the Midwest.

Commenting on the transaction, GFL CEO Patrick Dovigi, said: “With a liquid waste services company, we can really create a one-stop shop for all of our customers’ needs, “We’ll now be able to cross-sell between the various lines of our business and differentiate ourselves a little bit by offering the customers, particularly on that side of the business, a resource for all their waste needs.”


1 0 E I S I N S I D E R | M & A A C T I V I T Y


M&A ACTIVITYSPECIAL WASTEUS Ecology (NASDAQ-GS: ECOL) (US Ecology) completed two acquisitions in 2018: Ecoserv Industrial Disposal (EID) in November and ES&H of Dallas in August.

EID is a leading non-hazardous industrial wastewater (NIW) disposal solutions provider in the Gulf Coast region. The company is a wholly owned subsidiary of Ecoserv, LLC (Ecoserv), which is majority owned by Lariat Partners. BGL’s Environmental & Industrial Services team served as the exclusive financial advisor to Ecoserv in the transaction.

The Winnie, Texas-based company operates several of the only commercial caprock injection wells fully permitted for difficult to treat Class 1 and 2 NIW streams, including solids, sludges, high metals, flammable exempt, leachate, and ammonia. EID serves petrochemical, refinery, chemical, industrial, and environmental services customers in key markets such as Houston and Beaumont, Texas and Lake Charles, Louisiana. Commenting on the transaction, US Ecology’s CEO Jeff Feeler, said: “This acquisition adds unique, high volume industrial liquids disposal capabilities, complements other investments we’ve made in the region, and strengthens our comprehensive environmental services offerings.”

ES&H of Dallas adds three Texas locations in Dallas, Midland, and Austin which provide emergency response, industrial services, remediation, LTL, transportation, equipment cleaning, waste disposal, container rental, pipeline and recycling services. Jeff Feeler commented on the acquisition: “Texas remains one of the fastest growing economies in the US, driven primarily by the energy markets as well as the long list of new manufacturing facilities coming online. With this purchase, we see the opportunity to combine our existing suite of field services with ES&H Dallas’ emergency and spill response offerings, leveraging that business model across our network of facilities in the Gulf Coast and driving value for our customers.”

Clean Earth, a portfolio company of Compass Diversified Holdings, completed three acquisitions in 2018:

September 2018 – Disposal and Recycling Technologies, expanding Clean Earth’s geographic footprint in the Midwest and Mid-Atlantic hazardous and non-hazardous waste market. The acquisition adds a RCRA Part B Hazardous Waste TSDF and its first wastewater treatment facility.

May 2018 – EMSI Companies, a move that will expand Clean Earth’s soil recycling and hazardous waste solutions in the New York and New England markets. The company has locations in Fort Edward, New York, and Loudon, New Hampshire. EMSI is involved in the remediation, recycling, and beneficial reuse of contaminated and uncontaminated materials including soil, stone, dredge, mine tailings, paper mill sludge, and other materials. The company has diverted more than 6.5 million tons of material from landfills.

March 2018 - MKC Enterprises, a Doraville, Georgia-based provider of hazardous and non-hazardous waste management services. With the acquisition, Clean Earth adds a fully permitted hazardous waste RCRA Part B facility, expanding its processing capacity in medical waste and additional forms of non-hazardous waste for the high-end technical market, including university research and development labs, industrial companies, and medical facilities. Commenting on the acquisition, Chris Dods, CEO of Clean Earth, said: “Our combined geographic footprint will open new markets for Clean Earth, expand our customer base, and enhance our growth prospects.” Clean Earth has been backed by Compass since 2014 and has completed six acquisitions under its ownership.

In August 2018, Valicor Environmental Services, a portfolio company of Wind Point Partners, acquired certain assets of assets associated with Dagger Oil Recovery and Regio Vacuum Service (Dagger), Valicor purchased a newly constructed CWT facility, extending its wastewater processing network into Houston, Texas. The acquisition follows the November 2017 purchase of Midstate Environmental Services from Universal Lubricants, which added two CWT facilities in then new markets of Texas and Oklahoma. Valicor CEO James Devlin commented on the Dagger transaction: “We are extremely fortunate to further develop Valicor’s leading network of CWT facilities in the growing Gulf region. The Dagger asset will complement our recent addition of two CWT facilities through the acquisition of MidState Environmental Services and represents another important step in Valicor’s strategy to add geographies in order to better serve new and existing customers.”




M&A ACTIVITYSPECIAL WASTEIn June 2018, ProAct Services Corporation was acquired by Evoqua Water Technologies (NYSE: AQUA) in a $132 million all-cash transaction. The provider of on-site treatment services of contaminated water will operate as a separate division within Evoqua’s Industrial Segment. ProAct’s mobile water treatment solutions include customized, on-site groundwater and soil treatment solutions, hydrostatic water treatment, and tank degassing solutions. The company services customers nationally from facilities in California, Florida, Michigan, Minnesota, New Jersey, Virginia, and Texas

Ron Keating, Evoqua CEO, commented on the transaction: “ProAct Services has a well-earned reputation for safety, exceptional service, and a commitment to customer satisfaction. The addition of their 900 mobile assets using remote-monitoring technology enhances Evoqua’s ability to be a ‘one-stop shop’ for customers that are looking for temporary and mobile water treatment solutions,” said. “In addition, ProAct will expand our portfolio offerings as we service our industrial customers’ needs across a complete line of environmental solutions.” Transaction Multiples: 2.44x Revenue and 11.0x EBITDA

In May 2018, One Equity Partners (OEP) acquired the U.S. energy services businesses of Gibson Energy (TSE: GEI), including U.S. Environmental Services and U.S. seismic assets, for approximately $96 million. The business, which provides environmental services to energy customers, was renamed OMNI Environmental Solutions. OMNI’s comprehensive offering includes water logistics and disposal; solid waste processing, treatment, and landfilling; and other specialty environmental services such as offshore inspection and cleaning.

“We look forward to providing OMNI additional resources to expand its operations throughout North America and position the company for its next chapter of growth,” said Ham James, Vice President, OEP. “OMNI is a proven leader in reducing environmental risks and costs for its blue-chip customer base, and it will remain committed to that mission.”

In May 2018, American Residuals Group acquired Terra Renewal Services (TRS) from Darling Ingredients (NYSE:DAR) in an $80 million all-cash transaction. TRS is involved in the collection, hauling, and disposal of non-hazardous, liquid, and semi-solid waste streams from the food processing industry.

In December 2017, Kinderhook Industries acquired Intergulf Corporation. Headquartered in Baytown, Texas, Intergulf is a vertically-integrated, industrial liquids management business specializing in procuring, treating, and processing petroleum, petrochemical co-products, and waste streams. Brandon Velek will continue in his current role as CEO post-transaction. BGL’s Environmental & Industrial Services team served as the exclusive financial advisor to Intergulf in the transaction.

Velek commented on Intergulf’s new financial sponsor relationship, saying, “We look forward to the partnership with Kinderhook and leveraging the resources they bring to the table to accelerate the execution of our growth strategy. The company is well-positioned to continue to grow by investing in new capabilities and expanding into new markets.” “Kinderhook intends to support an aggressive investment program in Intergulf that will allow the company to capitalize on this growth opportunity in the environmental services space,” said Corwynne Carruthers, Managing Director at Kinderhook.

In December 2017, Audax Group acquired Liquid Environmental Solutions from ABS Capital Partners and Craton Equity Partners, former venture investors which have backed the company since 2009. LES is a leading national provider of non-hazardous liquid waste management and disposal services. Commenting on the acquisition, Audax Group Co-CEO Geoffrey Rehnert, said: LES is a leader in the non-hazardous grease trap, used cooking oil, and industrial liquid waste management industry. We look forward to working with Alan and the rest of LES’ management team to continue to grow the platform through organic growth and add-on acquisitions.”

LES completed five acquisitions over the last 18 months, expanding its core grease trap, used cooking oil (UCO) recycling, and industrial wastewater services to a broader geographic footprint: Dallas, Texas-based Dal-Worth Industries (January 2018), serving the Dallas-Fort Worth region; A-1 Restaurant Services (December 2017), adding a permitted facility in Phoenix, Arizona dedicated to grease trap waste and UCO processing; Gordon’s American Waste System (November 2017), serving the Denver metro area; Value Stream Environmental Services (November 2017), adding Little Rock, Arkansas to its network servicing customers throughout Arkansas; and Affordable Bio Feedstock (October 2017), adding two grease trap pretreatment and recycling facilities located in Kissimmee and Port Charlotte, Florida.



M&A ACTIVITY


SOLID WASTELES’ national service network is supported by 300 vacuum trucks, 54 collection branches, and 24 wastewater treatment plants.

In February 2019, Macquarie Infrastructure Partners (MIP) announced it was acquiring Wheelabrator from Energy Capital Partners. Wheelabrator is a leading waste-to-energy business with facilities in the U.S. and the U.K. The company operates 19 WtE facilities (three under construction), two waste fuel facilities, and four ash monofills and has an annual waste processing capacity of over 8 million tons. The deal is expected to close in Q1 2019 subject to regulatory approvals.

MIP CEO Karl Kuchel, commented on the investment: “We are very pleased to partner with Wheelabrator and its management team to continue to provide high-quality waste-to-energy (WTE) services in the communities that Wheelabrator serves. We look forward to working together in the years ahead to ensure Wheelabrator’s continued success.”

In February 2019, Macquarie Infrastructure Partners completed the acquisition of Northeast disposal company Tunnel Hill Partners (THP). THP was founded in 2008 by American Infrastructure Funds. Connecticut-based THP identifies itself as the largest U.S. “integrated waste-by-rail company”, operating two Subtitle D landfills, 14 transfer stations (including many with rail capability), two recycling facilities, one beneficial use burial site, and collection company City Carting. The company’s Northeast footprint extends from Ohio to Massachusetts, a region that is experiencing declining disposal/landfill capacity, reported Waste Dive. Revenues for the twelve months ended June 30, 2018 were $280 million.

In December 2018, Waste Connections (NYSE:WCN) acquired American Disposal Services, a provider of solid waste collection and recycling services in the Mid-Atlantic, expanding WCN’s footprint in Virginia, Maryland, Georgia, and Colorado. The company serves approximately 400,000 customers and has annualized revenues of approximately $175 million.

Waste Connections CEO Ronald Mittelstaedt commented on the transaction: “We are excited to welcome American into the Waste Connections family. American is the market leader in Northern Virginia, where the majority of its assets are located. In addition to providing new market platforms for future growth opportunities in both Virginia and Georgia, this acquisition also enhances our market positioning in Denver, where American’s collection services will be tucked into our vertically integrated operations.”

The transaction follows a series of buys in 2018, among the acquisitions:

May 2018 - Right Away Disposal, a vertically integrated solid waste company serving the Pima, Pinal, and Maricopa counties in Arizona. The company operates 3 collection operations, 1 recycling facility, 2 transfer stations, and a MSW landfill.

April 2018 - Heart of Florida landfill in Central Florida near Ocala. WCN identified the asset as one of the last remaining privately-owned MSW landfills in the state and will complement existing Progressive assets.

In December 2018, Gold Medal Group, a portfolio company of Kinderhook Industries, and minority partner BioHiTech Global, Inc. (NASDAQ: BHTG) acquired Apple Valley Waste, a provider of solid waste processing, disposal, and recycling services throughout the Mid-Atlantic region. Summer Street Capital Partners exited its seven-year investment in the sale.

Summer Street Capital Partners acquired Apple Valley in 2011, and during its ownership, completed 16 add-on acquisitions to expand the company’s geographic footprint and route density. Commenting on the investment, Brian D’Amico, a partner at Summer Street Capital Partners, said: “We are proud to have supported the team at Apple Valley, who grew a small, local provider into a community-based solid waste and recycling resource throughout the Mid-Atlantic region.”

Michael Schmidt, EVP of Strategic Growth and Development at Gold Medal, commented on the acquisition: “We are excited to bring Apple Valley into the fold at Gold Medal. Apple Valley has established itself as a leader within its markets, allowing Gold Medal to expand its presence as a leading provider of waste collection, disposal, and recycling services from West Virginia to New Jersey.”

In November 2018, Waste Management (NYSE: WM) acquired Aiken, South Carolina-based Tyler’s Sanitation. The provider of residential and commercial waste services to Aiken County presents opportunities to expand locally, according to a statement from Waste Management.



M&A ACTIVITYSOLID WASTEThe transaction follows the April 2018 purchase of EnviroSolutions, a solid waste and recycling services company offering hauling, transfer, and disposal services to commercial, industrial, and residential customers in the Mid-Atlantic region. ESI was previously backed by an investor group comprised of Ascribe Capital, Guggenheim Partners, and PennantPark Investment Corp. (NASDAQ:PNNT) which acquired the company in 2010.

In November 2018, GFL Environmental completed the acquisition of Waste Industries USA in a transaction valued at $2.8 billion. Calling the deal transformational, GFL CEO Patrick Dovigi said the transaction creates the largest private operator in North America, more than doubling its footprint in the region, with a presence in 20 U.S. states and nine provinces in Canada. “Waste Industries will more than double GFL’s current footprint of operations in North America, adding collection, transfer station, materials recovery and landfill operations in fast-growing United States markets (including North Carolina, South Carolina, Georgia, Colorado, Tennessee, Virginia and others), growing our customer base, and forming an extended platform from which GFL can continue to execute on our proven organic and acquisition growth strategy.”

GFL stated plans to continue pursuing acquisitions to build its footprint in North America, saying in Waste Today: “I think largely we’re in the geographies we want to be in… and we want to continue densifying our existing region to continue to grow and really focus on the core market we’re in today. That will be largely where we focus. Obviously solid nonhazardous waste is the biggest market, and then recycling and disposal services, but we will continue to focus on acquiring businesses that fit within that model in the markets it makes sense.”

Waste Industries was acquired in September 2017 by an investor group comprised of HPS Investment Partners, Equity Group Investments, and CEO Ven Poole. GFL was recapitalized by BC Partners and Ontario Teachers’ Pension Plan in a $5.1 billion deal this May.

In May 2018, Waste Industries merged with Denver, Colorado-based Alpine Waste & Recycling, marking an entry to the western U.S. The acquisition was the first expansion for Waste Industries outside its core East Coast footprint, consisting of North Carolina, South Carolina, Georgia, Tennessee, Virginia, Maryland, and Delaware. Alpine is a vertically integrated company operating residential collection, commercial collection, a MRF, and a landfill.

In October 2018, LJP Enterprises was acquired by Aperion Management, Ocean Avenue Capital Partners, and SkyDeck, in partnership with management. LJP provides commercial and residential solid waste processing and transportation services in Southwestern Minnesota. LJP owns and operates two MSW transfer stations.

WCA Waste Corporation completed two add-on acquisitions in 2018: Sunshine Recycling in September and Global Waste Services in August. The acquisition of Sunshine expands WCA Waste’s Florida footprint with the addition of hauling operations in Orlando and Jacksonville. The company provides commercial, roll-off dumpster, and disposal services to approximately 2,000 customers in more than 16 counties. Global Waste Services is a provider of collection and recycling services for industrial, commercial, and residential customers in the greater Houston market. The company operates the largest independently-owned MRF in the Houston area. WCA Waste has been backed by Macquarie Asset Management since 2012.

Meridian Waste has been aggressively growing its service footprint, announcing the completion of several add-ons since its acquisition by Warren Equity Partners this April. Walter “Wally” Hall, a former founder of Advanced Disposal Services, leads Meridian Waste as CEO.

December 2018 – Acquired the Poplar View Landfill and Riverside Landfill, two of only three operational C&D landfills in Knox County, Tennessee. Steven Wacaster, a Managing Partner at Warren Equity Partners, commented on the transaction: “We have a long-term vision of building a vertically-integrated presence within the area, similar to our strategy in other markets. It’s historically been a winning formula that we’re bringing to Knoxville and plan to replicate as we enter into new markets.”




M&A ACTIVITYCONSULTING & ENGINEERINGSeptember 2018 – Acquired Partner Disposal, a provider of solid waste services in the greater Jacksonville, Florida market. The acquisition represents a new market entry for Meridian.

August 2018 – Purchased the assets of Bob’s Refuse Service, New River Container, and Resource Management Group companies, adding a new C&D MRF operating asset and an entry into the growing Blacksburg/Christiansburg market, strengthening its collections and processing footprint in Southwestern Virginia.

WEP stated plans to continue expanding Meridian’s geographic reach through add-on acquisitions and greenfield expansions. Since April 2018, the sponsor has expanded Meridian’s geographic footprint from its St. Louis, Missouri, and Richmond, Virginia locations into Georgia (Augusta and Macon); Blacksburg, Virginia; and Northeast Florida. The company now services more than 143,000 residential, commercial, industrial, and governmental customers.

March 2018, Valet Living acquired Ohio-based V.I.P. Waste Services, expanding its Midwest footprint. V.I.P. Waste provides valet (doorstep) trash and recycling programs for apartment communities, serving more than 30,000 unique residents per week in the Midwest region.

In December 2017, Lakeshore Recycling Systems was acquired by MapleWood Partners and Goldman Sachs Private Capital Investing Group in a transaction valued at $205 million. Since its inception in 2012, LRS has a demonstrated a history of acquisitive growth having completed seven acquisitions to expand its service footprint in Illinois. The company reported annual revenues in excess of $170 million in 2017. LRS continues to seek super-regional acquisition opportunities in Wisconsin, Indiana, Minnesota and Southwest Michigan, according to a company press release.

“We are excited to invest in LRS,” said Antoine Munfa of Goldman Sachs. “The company’s high-quality service and impressive track record of innovation, especially its utilization of technology to improve recycling and diversion rates, differentiates LRS from its peers.”

CONSULTING & ENGINEERING

In December 2018, Apex Companies was acquired by Sentinel Capital Partners, Yukon Partners, and other undisclosed investors. Apex was previously backed by Tailwind Capital, which acquired the company in 2010 and completed eight add-on acquisitions during its ownership. Apex is a national multidisciplinary environmental engineering firm serving private and public sector clients in diverse end markets including energy, industrial, manufacturing, real estate, retail, and telecom. The company employs more than 700 professionals across 25 states.

Commenting on the investment, Michael Fabian, a Sentinel Partner, said: Apex is a leading growth platform in the highly attractive environmental services market. With a highly capable, passionate management team and a dedicated team of employees, we believe Apex is well-positioned to continue its history of growth, both organically and through acquisition.”

TRC Companies, a portfolio of New Mountain Capital, announced acquisitions in 2018:

October 2018 – IJUS, a power/utility engineering firm and a leader in transmission and distribution, expanding its presence in the power market. The company has 15 offices in 9 states. TRC CEO Chris Vincze commented on the acquisition. “This is a sector of the power market that is primed for strong growth over the next decade, with utilities looking to improve grid reliability and resiliency and harden their infrastructures. This move positions us to capitalize on that increased demand and continue to meet the growing needs of our clients.”

June 2018 - Vali Cooper & Associates, an infrastructure firm serving the transportation, water/wastewater, utility, and facilities markets. The acquisition adds transportation and water resources expertise to the growing West Coast infrastructure sector.

January 2018 - American Environmental Consultants (AEC). Based in Weymouth, Massachusetts, AEC provides environmental and hazardous materials assessment services in the New England region. The company specializes in environmental sciences, industrial hygiene, indoor air quality, microscopy, laboratory analysis services, and legal services for environmental issues.




M&A ACTIVITYCONSULTING & ENGINEERINGTRC Companies was acquired by New Mountain Capital in June 2017.

In March 2018, JMH Capital Partners completed a recapitalization of All4, a provider of air quality support and consulting services to diverse industries including pulp and paper, oil and gas, food and beverage, waste management, power generation, and automotive. The company was founded in 2002 and has offices in Pennsylvania, Georgia, Texas, and Virginia.

All4 CEO Bill Straub, commented on the transaction: “We are excited about partnering with JMH Capital to support a dynamic set of strategic growth initiatives and to continue our aggressive organic growth model, while providing our clients with the superior technical service they have come to expect from us. The partnership will also allow us to consider acquiring like-minded practices with a similar technical capacity and that highly value culture to further our geographic and service-line breadth.”

John Nies, Managing Partner of JMH Capital, commented on the investment: “The team at All4 has sustained long term growth trends since its founding in 2002 due to their technical leadership and unparalleled client service. Our research found it to have industry-leading customer feedback scores along both those dimensions. We are excited to support a truly best-in-class team in their goal to expand strategically throughout North America.”

GZA GeoEnvironmental Technologies announced acquisitions in 2018:

March 2018 - Groundwater consulting firm Emery & Garrett Groundwater Investigations (EGGI), strengthening GZA’s capabilities in water-related services. The company is based in New Hampshire and serves the eastern United States. “The EGGI team is one of the most respected and sought-after groundwater experts in the eastern United States, and this acquisition enables GZA to expand our water services and client base,” said Bill Hadge, CEO of GZA. “As demand for sustainable groundwater resources continues to increase, the ability to identify and develop previously undiscovered groundwater supplies will become ever more important.”

January 2018 – New Jersey-based Melick-Tully and Associates, a provider of geotechnical, environmental and geologic services to builders and developers in the northeast. “We’re now able to expand our core service lines in geotechnical, environmental, ecological, water, and construction management in the commercial real estate sector in one of the strongest economic regions in the country, the metropolitan New York area,” said Hadge.

In March 2018, Stantec (TSX: STN) completed the acquisition of Occam Engineers (OEI). OEI expands Stantec’s water, transportation, and public works service in the Southwest U.S. The company has offices in New Mexico and Houston. Commenting on the acquisition, John Take, Stantec Senior Vice President, Water, said: “OEI’s strong client relationships in both the water and transportation markets will help us as we continually expand both the depth and breadth of our professional services across the Southwest US.”

In February 2018, UK-based The ERM Group completed the acquisition of environmental consulting firm Michael Pisani & Associates (MP&A), expanding its oil and gas expertise. MP&A operates offices in Louisiana and Texas and serves customers on the U.S. Gulf Coast. Environmental services include wetlands and coastal ecology, litigation support, sediment assessment and clean-up, and other specialist soil and groundwater offerings. The company services the upstream and midstream segments of oil and gas, in addition to the legal, metals and mining, manufacturing, chemical, and transportation sectors. “Bringing MP&A on board is another significant step in our long-term growth strategy in the oil and gas sector,” said ERM CEO Keryn James.

In January 2018, ATC Group Services, portfolio company of Bernhard Capital Partners, acquired environmental consulting firm White Environmental Consultants (WEC). The company has offices in Anchorage, Alaska and Honolulu, Hawaii. WEC specializes in environmental compliance and occupational health and safety, with expertise in the identification, assessment, management and abatement of industrial and environmental hazards. WEC is ATC’s only acquisition in 2018 and its fourth add-on under Bernhard’s ownership.

In January 2018, POWER Engineers acquired Zephyr Environmental, a move to expand its environmental services practice. Zephyr has offices in Austin, San Antonio, and Houston, Texas, as well as York, Pennsylvania and Baltimore, Maryland. Both companies serve the electric utility, oil and gas, refinery, and food processing industries.



1 6 E I S I N S I D E R | I N D U S T R Y S P O T L I G H T

UNDERGROUND INFRASTRUCTURE

Demand is expected to continue to grow for underground infrastructure services. Increased spending on aging infrastructure, growing construction activity, increased enforcement of regulations, heightened sensitivity around accessing underground infrastructure, and ongoing energy development are expected to sustain the need for infrastructure services. Further, climate change has the potential to significantly accelerate the need to fix aging stormwater systems, further driving demand.

INDUSTRY

The underground infrastructure market is highly fragmented and serviced regionally by hundreds of operators. The market is defined to include services needed to locate, repair, maintain, replace, or install underground infrastructure such as utility lines, telecom/fiber optic cables, and pipelines. For purposes of this report, our examination of industry trends, supported by discussions with leading industry executives, encompasses the following critical services:

Utility Locating and Concrete Scanning. Identification of underground utility assets such as electrical, water, gas, communication, sewer, and storm drain lines. Ground penetrating radar, electromagnetic induction, and radio detection are frequently used technologies. Technological advancements aim to reduce utility location times, resulting in increased productivity, lower costs, and improved data quality. Other services include inspections, monitoring, and leak detection services.

Excavation. Use of vacuum excavation and mechanical excavation to excavate soil and expose underground utilities. Insiders cite increasing market adoption of hydroexcavation for better damage and safety control.

Pipeline Infrastructure. Inspection, cleaning, maintenance, and rehabilitation of gas, water, and wastewater pipelines. Trenchless technologies are substituting more disruptive and expensive “dig and replace” techniques.

CUSTOMERS

Industry participants serve public and private sector clients across key end markets:

The underground infrastructure services market is growing, driven by heightened regulatory pressure, aging infrastructure, and increased construction activity which are expected to sustain demand. Capital is flowing into the market in recognition of the industry’s favorable tailwinds and fragmentation, with consolidation expected to continue as participants look to build scale and diversify service lines.

Steve Lacy, Chief Executive OfficerMark Bruce, Vice President

Mark Burel, Chief Executive Officer

Blake Kuhlenschmidt, Director of Corporate Development

PART IC IPAT ING F IRMS

Thomas R. (Tom) Barr, Founder

Matt Aston, Chief Executive Officer

• Utilities

• Municipalities

• Power Generation

• Telecommunications

• Transportation

• Industrial

• Engineering

• Construction

1 7



SEGMENT S IZE AND COMPET IT IVE LANDSCAPE

The competitive landscape is highly fragmented with a number of solid regional players across service disciplines but no clear market consolidator. USIC (backed by Partners Group) (utility locating), Badger Daylighting (TSX: BAD) (hydroexcavation), and (Aegion/Insituform (NasdaqGS: AEGN) (pipeline repair) are the largest pure-play operators in the underground infrastructure services space.

The global Utility Locating market is projected to reach $7.50 billion by 2023, up from $5.62 billion in 2018, representing a CAGR of 5.94 percent, according to estimates from Research and Markets. Geographically, North America is the largest market and is expected to grow 5 percent annually during the forecast period. The public utility locating market in the United States is concentrated in fewer players with USIC holding the largest share. The private utility locating market, which is seeing rapid growth, is significantly more fragmented. “More construction projects are being completed by companies that now have stronger balance sheets. Nobody really knows where the infrastructure is underground, so there is strong demand,” offered Mark Burel, chief executive officer at Hoffman Southwest.

Hydroexcavation is characterized as a mom-and-pop industry dominated by smaller players serving local markets. A recent analysis by BMO Capital Markets sized the North American market at approximately 7,000 hydrovac units in operation, of which Badger Daylighting holds an estimated 15 percent share. “There is a lot of opportunity to enter the market. We have seen a number of smaller competitors becoming more aggressive in bidding and pricing,” observed Burel. “The large and mid-sized players are getting bigger, and there is a lot of smaller competition coming into the market.”

Market estimates from Aegion for Pipeline Rehabilitation are segmented by Wastewater CIPP (cured-in-place pipe) Rehabilitation, Pressure Pipe Rehabilitation (trenchless water pressure pipe), and Cathodic Protection Services, each valued at over $1.0 billion in North America. Aegion is the market leader in North America wastewater pipeline rehabilitation. “Lining is the preferred method to rehab sewers and storm sewers. It is a big business, and it is not going away,” commented Burel. “There are a number of large players, but they serve the big markets, so the smaller markets are underserved.” He added, “Typically, you see one or two mid-sized companies that service those local markets.”

Hydromax USA is a participant in the pipeline infrastructure market, servicing the gas, water, and wastewater markets. Cross Bore Inspection and Leak Survey represent key service areas. The gas market is growing, says Mark Bruce, co-founder and Vice President, and currently represents its largest business. While the broader market encompasses natural gas transmission and distribution, Hydromax primarily concentrates in pipeline distribution, which represents pipe diameter of six inches or less. “It is a big market,” Bruce said, citing a recent statistic of 2.2 million miles of distribution line in the United States.

Cross Bore Inspection is an estimated $500-600 million market that is projected to reach $1.2 billion by 2025, according to Bruce. Growth is being fueled by lower natural gas prices, which are driving adoption in new construction, in addition to the replacement of aging pipe. There has been a push from regulators to support the capital cost to install new gas mains and distribution lines, Bruce indicated. “A lot of the old pipe was metal and had different levels of protection, much of which is rusted out and leaking. Most utilities are in the middle of that replacement and


“There is a lot of opportunity

to enter the [hydroexcavation] market. The large

and mid-sized players are getting

bigger, and there is a lot of smaller

competition coming into the market”



The nation’s vast network of underground infrastructure, including water, telecom, energy, and electrical pipelines, is aging and in need of substantial rehabilitation and maintenance.

The American Society of Civil Engineers (ASCE) released the 2017 Infrastructure Report Card, grading the country’s infrastructure systems with a D+. The study is performed every four years and evaluates the condition of national infrastructure categories to assess needs and investment. The ASCE estimates U.S. infrastructure needs at $4 trillion over the next 10 years.

1.6 million miles of underground water and wastewater pipelines in the U.S. Many water mains and pipes were laid in the early to mid-20th century with a lifespan of 75-100 years.

According to the ASCE Report Card, 240,000 water main breaks occur every year in the United States. A March 2018 study conducted by the University of Utah examined water main break rates, which are considered to be the most critical factor in assessing the condition of underground pipe networks. The study revealed several key findings:

• Water main break rates increased by 27 percent between 2012 and 2018.

• Over 16 percent of installed water mains are beyond their useful life. Further detail revealed that 43 percent of water mains are between 20 and 50 years old and 28 percent of all mains are over 50 years old.

• Cast iron (CI) and asbestos cement (AC) pipe, which make up nearly half (41 percent) of installed water mains in North America, have seen break rates increase by 46 percent and 43 percent, respectively, since 2012. Eighty-two percent of all CI pipe is over 50 years old.

• The national rate of pipe replacement is 125 years.

“One could envision a rapid increase in break rates in the near future for cast iron and asbestos cement pipes. Utilities across the country would need to rapidly accelerate their pipe replacement schedules to avoid potentially serious economic and social impacts. If a break rate doubles the economic impact is significant: one would need to double the number of personnel repairing failures along with supplies and materials while loss of treated water increases. Societal impacts would be devastating if the break rates reached exponential levels,” said Dr. Steven Folkman, author of the study.

“Perhaps because it is underground and out of sight, it’s easy over time to let water and wastewater infrastructure deteriorate significantly so the challenge will be with us for decades to come,” said Tom Barr, Founder of Infrastructure Services Group, LLC (ISG). “Such systems require continuous inspection and maintenance, as well as major replacement or relining.”

Renewal and replacement of aging water and wastewater infrastructure has consistently ranked as the biggest challenge facing the water industry in the American Water Works Association’s (AWWA) State of the Water Industry survey. According to AWWA estimates, $1 trillion will be required to restore and expand U.S. water infrastructure systems over the next 25 years. The EPA estimates $271 billion will be needed for wastewater infrastructure over the same period.

Wastewater received a grade of D+ and Water a D on the ASCE Infrastructure Report Card.

Long-haul fiber-optic cable network stretches 113,000 miles in the U.S. Researchers at the University of Wisconsin publicly released the first map of the U.S.’s physical internet—analysis which took the team four

years to build. According to a 2017 study by Deloitte Consulting LLP, between $130 and $150 billion will be required for fiber infrastructure investment in the United States over the next five to seven years.

2.6 million miles of oil and gas pipelines in the U.S. Nearly 50 percent of the U.S. natural gas pipeline infrastructure was built in the 1950s and 1960s, according to Business Roundtable, which

estimates $270 billion will be required to replace outdated cast iron and bare steel pipes throughout the natural gas distribution system. In addition, a projected 167,000 to 209,000 miles of natural gas pipelines will need to be constructed through 2035 to increase the system’s carrying capacity.

According to the ASCE Report Card, most electric transmission and distribution lines were constructed in the 1950s and 1960s with a 50-year life expectancy. Additionally, more than 640,000 miles of high-voltage transmission lines in the lower 48 states’ power grids are at full capacity.

Energy received a grade of D+ on the ASCE Infrastructure Report Card.

I N F R A S T R U C T U R E

1 9



• Increasing construction demand is driving the need to uncover and access underground assets. Dated city planning maps make it difficult to precisely identify the location of older underground assets.

• The high value of assets including pipelines and cables, coupled with the high cost of failure if assets are damaged during construction, is driving regulation and customer requirements to alternative technologies.

• High profile explosions and breakages have elevated the need for turnkey underground infrastructure solutions.

STIMULUS

Details of the Trump administration’s $1.5 trillion infrastructure plan specify $200 billion in federal funding over the next 10 years, leaving the balance the responsibility of state and local governments and private firms.

In October 2018, President Trump signed into law the America’s Water Infrastructure Act of 2018 to support the funding of drinking water, wastewater, and stormwater infrastructure projects. Key provisions of the new legislation outlined by the National Association of Sewer Companies (NASSCO) include:

• Formation of the Section 221 grant program to assist communities with the funding of CSO, SSO, and stormwater infrastructure projects, identified by NASSCO as “the first new sizable grant program for water infrastructure in many years”.

I N F R A S T R U C T U R E

An underground utility line is damaged

every six minutes in the United States.

Underground utility damages increased

nearly 20 percent to 378,000 in 2016,

costing an estimated $1.5 billion.

- Common Ground Alliance

Source: 2017 DIRT Analysis & Recommendations, Common Ground Alliance

FACILITY DAMAGES

U.S. DAMAGE COUNTS

378,000

416,000

439,000

300,000

350,000

400,000

450,000

500,000

2015 2016 2017

ROOT CAUSE FOR DAMAGE EVENTS FACILITIES DAMAGED

52%

25%

17%

1%

5%Excavation Practices NotSufficient

Notification Not Made

Locating Practices NotSufficient

Notification Practices NotSufficient

Miscellaneous

51%

21%

10%

8%

3%8%

Telecommunications

Natural Gas

Cable Television

Electric

Water

Unknown/All Other

• Two-year extension to the EPA’s Water Infrastructure Finance and Innovation (WIFIA) Act, providing for an estimated $5 billion in new federal financing for water infrastructure and an estimated $10 billion in combined federal and local funding.

• Formation of a new stormwater financing federal taskforce for the purpose of increasing federal funding for stormwater infrastructure.

Signed into law in December 2015, the Fixing America’s Surface Transportation (FAST) Act authorized $305 billion over fiscal years 2016 through 2020 for infrastructure planning and investment. Roads received a grade of D and Transit a D- on the ASCE Infrastructure Report Card.



ramping up for more new installations,” said Bruce. Legacy installations are also contributing to growth given the potential risk for cross bores in sewers. “There are very few utilities that have completed inspection of their legacy systems. Most have been concentrating on preventing cross bores in new installations.” Inspection of aging infrastructure will represent a steady source of growth for companies like Hydromax. Leak Detection is an estimated $500-600 million market and stable given that inspections are mandated.

Substantial opportunity exists to create sizable platforms which has attracted a significant level of private equity interest and outside capital investment. There is momentum in the market to create consolidation platforms on a regional and national scale.

“Private equity just started entering the space,” said Steve Lacy, co-founder and CEO of Hydromax USA, speaking to pipeline condition assessment and repair, which is serviced by a large number of mom and pop operators with varying levels of sophistication. Lacy cited private equity platform investments by ORIX Capital Partners (Hoffman Southwest, 2017 investment) and Warren Equity Partners (Hydromax USA, 2016 investment), hinting the market is in the early stages of consolidation. Hydromax completed its first add-on acquisition this March with Miller Pipetech. Lacy contrasts it to pipeline installation, where there has been a high level of M&A activity, identifying Quanta Services, Miller Pipeline, and NPL among the active consolidators.

Smaller players are evaluating strategic options, and some have exited the market as customer expectations have increased.

INDUSTRY GROWTH

General industry growth has stimulated demand for infrastructure services. Optimism for continued health in the U.S. economy was revealed at the December Federal Reserve meeting. Fed officials revised quarterly economic projections, forecasting 3.0 percent growth in the economy in 2018—a modest decline from the September forecast of 3.1 percent. Forward estimates project 2.3 percent growth in 2019, 2.0 percent growth in 2020, and 1.8 percent growth in 2021. The unemployment rate is forecasted to decline in 2019 to 3.5 percent—down from 3.7 percent in 2018. Positive momentum should stimulate demand and provide a foundation for continued growth in the underground infrastructure market.

Growth in construction spending has also supported market expansion. The American Institute of Architects (AIA) is projecting growth in nonresidential construction activity through 2020. The AIA Consensus Construction Forecast predicts 4.4 percent growth in 2019 and 2.4 percent growth in 2020. Dodge Data & Analytics is projecting the value of total construction starts to remain steady at $808 billion—on pace with $807 billion estimated for 2018.

“We’ve had a nice run of development and spending for improvements across the building, healthcare, energy, utility, and alternative energy markets which we serve. General construction has been very strong for several years,” said Matt Aston, chief executive officer at Ground Penetrating Radar Systems (GPRS). GPRS specializes in the detection of underground utilities and the scanning of concrete structures.


“Perhaps because it is underground and

out of sight, it’s easy over time to let water

and wastewater infrastructure

deteriorate significantly so the

challenge will be with us for decades to

come”

2 1



“The strength of the economy has really helped,” commented Mark Burel at Hoffman Southwest. “During the pullback, cities had tightened their belts and weren’t spending money. There is pent up demand, and funding is available.” He added, “The gas industry has really seen a boom over the last seven or eight years. There is strong demand.”

Adoption

The market continues to move toward new and improved technologies as a means to reduce damage and provide more efficient solutions. Notable trends include the increasing adoption of trenchless technology, hydroexcavation, and more advanced inspection tools for underground pipe.

Trenchless Technology

Trenchless technology is exhibiting steady growth, according to Trenchless Technology’s 2018 ranking of leading trenchless engineering firms in North America. The top 50 firms reported trenchless revenue of $1.4 billion in 2018—a more than two-fold increase from $567 million in 2009. Horizontal directional drilling, subsurface utility engineering, and pipe rehabilitation are the market segments with the highest volume of projects.

“While trenchless technologies have been experiencing growth and greater acceptance, I believe we are going to see even greater growth in the coming decades,” said Michelle Macauley, P.E., LEG, national trenchless leader and geotechnical engineer with Jacobs Engineering Group (NYSE: JEC), in an interview with Trenchless Technology. “Applications of trenchless

technologies are spanning wider ranges of soil conditions, diameters, project types, disciplines, and geographic areas. Projects that were previously too large, too long, too curved, or too challenging are becoming less risky due to advances in equipment, technology, and software.”

Market expansion is creating a more competitive environment for large and small firms alike, according to Macauley. “As more companies expand into the trenchless market, a challenge for the industry will be to maintain quality and consistency of design and construction.”Market growth is broad-based insiders said, with aging infrastructure a major driver of demand. EPA enforcement of Consent Decrees has been a driver, as larger cities take a more proactive approach to assessment and rehabilitation.


Source: 2018 Top 50 Ranking, Trenchless Technology.

TRENCHLESS PROJECTS

29%

25%10%

10%

4%

4%3%

4%

4%

3%3% 14%

Horizontal Directional Drilling

Subsurface Utility Engineering

Pipe Rehab

Sanitary Sewer EvaluationStudies

Pipe Jacking

Pipe Bursting

Auger Boring

Microtunneling

Other



The next major trend will be in drinking water, believes Tom Barr at ISG, in CIPP solutions for pressured drinking water pipelines. “The technology is in development, but it may be years before it is fully adopted.”

Hydroexcavation

Increased adoption of hydrovac technology is also boosting growth, with the trend particularly strong in the U.S. market. Demand is broad-based across end markets and geographies served, with insiders citing natural gas construction as a key driver.

Badger Daylighting (TSX: BAD) CEO Paul Vanderberg commented in the company’s FQ3 2018 earnings call: “We continued to see revenue growth across our broad range of geographies and end use market segments and expect this to continue into the fourth quarter of 2018 on a Q4 year-over-year basis.” Vandenberg cited strong economic activity and improving U.S. oil and gas markets as key drivers underpinning growth.

Badger reported a 24 percent increase in U.S. revenue for the third quarter and 28 percent year-to-date, with U.S. operations now accounting for 77 percent of total revenue. “Ongoing U.S. market growth has really been instrumental in transforming Badger into a U.S. infrastructure operation,” Vandenberg said. In 2016, Badger established the goal to double its U.S. business in three to five years, a target which it is already 70 percent of the way to achieving. Badger achieved record revenue and adjusted EBITDA during the quarter.

Badger’s growth, in part, is attributed to a more stringent regulatory climate in Canada, its home country, which has provided significant momentum in the company’s expansion efforts, insiders observed. “Badger is growing and backed up by these tailwinds of 811 and damage prevention,” remarked Mark Bruce at Hydromax.

Insiders speak to growing competition in the U.S. market as companies continue to expand. “Equipment manufacturers cannot build the units fast enough. Construction firms, excavation firms…all are now starting to expand into hydroexcavation. That is changing the model,” said Steve Lacy at Hydromax. He continued, “Hydroexcavation will be “yellow iron” which means you are going to call the company up the road to get your hydroexcavation done. Hydroexcavation will not be on a nationwide platform. The need to have a crew from an Indianapolis office drive 150 miles away to dig a few holes is going to end.” In January 2018, Hydromax acquired an equipment dealership specializing in the environmental market.

Capital cost can be a barrier to entry for smaller players. “One of the throttles in our business is the cost of equipment. In the infrastructure market, a single truck can cost anywhere from 300,000 to 600,000, so it is difficult for any small company to build a sizable fleet,” said Mark Burel at Hoffman Southwest. “Private equity has entered the market and brought that capital into play, and in our case, has accelerated our growth. The capital support has allowed us to grow more rapidly than would have been the case without their involvement.”


“We’ve had a nice run of development

and spending for improvements

across the building, healthcare, energy,

utility, and alternative energy markets which we serve.

General construction has been very strong

for several years”

2 3



Cities are feeling more pressure from state regulators as damage prevention takes the spotlight which is stimulating demand for hydroexcavation. The city of Evansville, in response to penalties from the Indiana Utility Regulatory Commission after multiple gas main ruptures, invested in hydroexcavation equipment to internally service construction needs, previously relying on external firms to perform the work. “Now cities are doing it themselves. They have to,” Lacy commented. “It is not widely available. You have to be ready to hydroexcavate at any time.”

Advanced Inspection Tools

Increased adoption of advanced inspection tools for utility location and assessment has been a critical driver of growth. Increasingly, customers are recognizing the value in the services and incorporating them into their protocol. “It is almost policy now for these companies. Before making any groundbreaking or concrete penetrations, you must employ GPR services to minimize your risk,” offered Aston. Safety has been a focal point of construction, and the cost of services is low relative to the value of a construction project, making it an irresponsible decision to forego employing GPR services, indicated Aston. “That idea has taken hold within the industry with the knowledge that this technology is available.” Aston continued, “Contractors are highly dependent on repeat business. It would be difficult for them to justify their action if they sever a utility line or trigger a shutdown in a facility they are renovating because they chose to forego hiring a company like GPRS to do this work. It would jeopardize their credibility with their customer, the owner of that facility.”

Customer awareness was a challenge in the early years of the company, which required educating them about the technology and its capabilities and limitations. “While our services have been around for almost 20 years, I think they were met with some initial skepticism,” observed Aston. “After about 10 years, customers were using the services with greater frequency. Here we are at 17 years, and the adoption is really taking off. We have proven it out.”

GPRS serves large specialty contractors which are showing strong demand. Aston reports 30 to 40 percent increases in spending year-over-year for its services across its contractor base. The company achieved double-digit sales growth organically in 2017 and is currently ahead of last year’s pace. “The key is the adoption,” Aston said. “Leading companies in the industry recognize there are services available that will really help to minimize their risk.”

Aging Infrastructure

“Aging water and wastewater infrastructure is core to our investment thesis,” commented Tom Barr at ISG. “The reality is that there are 1.6 million miles of pipeline in the United States. There is a leak every two minutes causing more than 2 trillion gallons of treated water to be lost annually because the water and wastewater infrastructure is old.” “In the Northeastern part of the country the pipe is the oldest—much of it is over 100 years old. Water and wastewater infrastructure is out of sight, out of mind. But it’s not going away.”


“Equipment manufacturers

cannot build the units fast enough.

Construction firms, excavation firms…all are now starting

to expand into hydroexcavation.

That is changing the model”



Also central to ISG’s thesis is that extreme weather events exacerbated by climate change are contributing to the deterioration of water and wastewater infrastructure. “Climate change is real. It is creating flooding challenges, which you are seeing up and down the East Coast. It is creating stormwater challenges, which lead to more rapid corrosion that weakens infrastructure. Severe weather is causing overflows in combined sewer systems, and untreated sewage is being discharged into receiving rivers or streams. With climate change, there will be more and more work that is required to restore underground pipelines,” observed Barr.

Barr estimated as much as half a trillion dollars will be required for water and wastewater infrastructure investment over the next 25 years, of which $300 billion will be needed over the next five years alone to maintain the current systems.

EMERGING TECHNOLOGY

Drone Mapping is an emerging technology in the utility detection process. ReconnTECH, a new division of USIC launched in 2016, deploys the technology in field inspection, estimating it will reduce utility location times by up to 50 percent. Drone mapping is predicted to significantly aid in reducing costs, increasing productivity, and improving data quality, particularly for large scale projects which can involve hundreds or thousands of locations. “By using drones…we have increased our field productivity by 50 to 75 percent,” said USIC Technology Director Chris Bartlett.

3D Underground Infrastructure Mapping is gaining traction. Technology featuring geographic information systems (GIS) provide for 3D mapping of underground infrastructure, including water lines, sewer lines, gas and oil pipelines, communication lines, and power distribution lines.

Some insiders question the value that 3D mapping brings to the field. “The manufacturer-provided 3D systems don’t translate well into workable software for the contractor. Until they can integrate with the building information modeling software, we don’t see significant practical value in 3D,” commented Matt Aston of GPRS. “Instead, we provide computer-aided design (CAD) drafts of our findings which identify the scanned perimeter using GPS, which can then be overlaid onto customer drawings. It is usable instead of just a picture with limited reference points.”

Data Digitization is a nascent market in the gas services industry and one in which Hydromax sees a significant expansion opportunity as more utilities adopt integrated data tools for data collection, risk assessment, and asset management. Mark Bruce estimates the market opportunity at more than $700 million driven by increased education and adoption. Historically, utilities managed data in silos without a holistic view across multiple departments, Bruce said. “We are driving the utilities toward this datacentric approach, allowing them to manage data not only for their cross bore and leak survey programs but even in new construction utilizing GIS mapping. We are providing them with the tools they need to run their systems more efficiently and cost-effectively.”


“It is almost policy now for

these companies. Before making any

groundbreaking or concrete

penetrations, you must employ GPR

services to minimize your risk”

2 5



Technology will accelerate a sunsetting of 811 call center callouts, indicated Bruce. “The three-day wait for locates will be a thing of the past. It will be a matter of minutes to get a response,” Bruce said.

The emerging infrastructure data collection solutions market within gas services is concentrated in fewer players, says Bruce, counting only four or five companies involved in data collection for Cross Bore Inspection and one for Leak Survey. As data utilization becomes more recognized across the industry, smaller players will be challenged to compete given the scale and capital requirements. Hydromax identifies itself as a leader in the market, with nearly one-third of its employees dedicated to growing the technology arm of its business.

The water and wastewater markets started digitizing data early, with the aid of cities and counties, to map storm sewers and roads. “Water and wastewater are way ahead of the gas companies from a data perspective. They have been handing us digitized mapping systems for a decade,” said Steve Lacy at Hydromax. “They were ahead of the game because it was mandated, and there was funding. Gas was never pushed in that direction.”

Are insiders anticipating any new technologies in development to disrupt the market? “I don’t think there are any real disruptors. The GPR equipment that we use is very accurate and efficient. I am not aware of any technology that is really going to compete with it well,” offered Aston. Data acquisition has become more simplified, Aston indicated. The migration from analog to digital antennas in GPR equipment has allowed for greater speed and clarity in data collection, with insiders also citing improved depth effectiveness. The shift has also reduced man hours required to complete scans.

CUSTOMERS

Performance, price, and availability were cited as key influencers in customer purchasing decisions. Above all, performance was cited as a primary measure in selecting a service provider. Customers are willing to pay premium rates in exchange for a highly skilled and competent technical team to accomplish their goal of damage prevention.

Safety performance is a critical factor, with the push being led by industry leading general contractors and construction managers. “They are in the public eye. They are concerned for the safety of the people on their jobsites. They don’t want to take on that risk of somebody getting seriously hurt or worse over something that is very likely preventable,” said Aston. Work instructions and detailed operational procedures are more expected. Increasing focus on performance metrics, meeting goals, and safety visibility and processes for individual crews is a continuing trend.

“Safety is critical in all of our markets. It is elevated to an even higher level in the gas industry,” remarked Mark Burel at Hoffman Southwest. “In many cases, you have to prove to the gas companies that you have a safety program, and it has to meet certain rating specifications. In every meeting, we are talking safety.”

Price was cited as the primary purchasing criterion in municipal contracts. Bonding was also identified as a critical requirement. Smaller companies face some limitations because the larger the company, the larger the bonding capacity.


“Climate change... is creating flooding

challenges...stormwater

challenges. With climate change,

there will be more and more work

that is required to restore underground

pipelines”



“There are a number of city and municipal contracts for which the low bid wins. Our strategy is to partner with engineering firms and provide broader solutions to cities. That allows us to show our quality, productivity, and safety performance to win bids over price,” shared Mark Burel at Hoffman Southwest. “There may be projects that require three or four capabilities that the competition may not have, which is a reason to diversify your services.”

Pricing has shifted away from a time and materials (T&M) or daily rate structure to lump sum or per foot contracts. Customers have gotten smarter which has forced market participants to be more efficient on service delivery to drive margins.

Availability is an often-overlooked criterion that has grown in importance. “There is still a significant segment of this market that is reactive,” commented Matt Aston at GPRS. “Timing may be reduced to hours in terms of when a customer is going to require our services, versus days or weeks. In many instances, there are customers who just aren’t willing to wait.” Timing is becoming a more critical factor in vendor selection, particularly in the large metro markets.

Increasingly, EPCs and GCs are spec’ing infrastructure services into their bids. “It is definitely happening. We’ve been proactive in that in actually helping many of them write the specs,” said Aston.

Given the tight labor market, insiders say customers are increasingly moving to long-term contracts—gas utilities in particular—given the high switching cost on ongoing projects. “It gets almost too

expensive to try to do yearly contracts now,” said Steve Lacy at Hydromax. “The gas utilities don’t want to vet new people. They might not find them. It’s costly.” “Other utilities might be signing up three- to five-year contracts, and no contractors are available. And they have to get their work done by law,” added Mark Bruce at Hydromax. “Longer-term contracts are happening. Purchasing departments are getting more sensitive to it.”

Outsourcing is a continuing trend in the industry, said some insiders. “Our customers are outsourcing more services,” commented Burel. “Utilities—particularly gas utilities—are outsourcing more because unions are shrinking, and the cost to them is significantly lower to outsource.”

REGULATION

Insiders speak to a strengthening of existing regulations. “We are observing increasing enforcement and interpretation of the existing laws,” said Mark Bruce at Hydromax. “Even though laws are in place, enforcement requires time to take effect. Regulations are getting enforced at higher levels, and damage prevention in new construction is gaining more visibility. As regulations are enforced, it acts as a multiplier on top of industry growth.”

The wastewater market is regulated by the Clean Water Act, under which Consent Decrees mandated by the Environmental Protection Agency (EPA) are becoming more broadly enforced, insiders said. “Regulatory pressures are always there,” commented Burel. “EPA Consent Decrees legally require cities to perform work on their sewer systems. The data we have forecasts that by


“Regulations are getting enforced at

higher levels, and damage prevention in new construction

is gaining more visibility. As

regulations are enforced, it acts as

a multiplier on top of industry growth”

2 7



2020, most of the infrastructure will be rated in poor or very poor condition, which means it has to be fixed.”

Steve Lacy at Hydromax referenced the city of Evansville, Indiana, which signed a consent order in early 2017 for $820 million in mandated spend covering an estimated 1,000 miles of pipe. “The 1972 law is just trickling down to towns like Evansville,” Lacy said. “Cities are getting sued every year.” According to Lacy, the EPA first targeted larger cities located on rivers and waterways because they had combined sewer systems and are now addressing smaller towns. “Those are 20-plus year programs,” he added, “…and by law, change the way a city is required to run its system forever. It has forced them into heavier asset management.”

“The EPA is moving down in the system a lot deeper than they were,” echoed Burel. “We work for the large cities. We’re now doing a lot more work for the smaller cities.”

Water Infrastructure may begin to see increased regulation, Lacy speculated. “While there has been no movement at the federal level, you are starting to hear states talking about mandates,” Lacy said. Lacy indicated some states are proactively addressing infrastructure deficiencies without forced mandates, citing the city of Evansville, Indiana, which recently launched Renew Evansville, a $100 million water line replacement program. “Every time they turn around, there is a leak somewhere in the system, and it costs $25,000 to fix it. They have taken it upon themselves to do it.”

Aging infrastructure will be a major growth driver for the water market. “Water departments are already GIS-centric. They know where their assets are, but they still have to go out and locate the problems with their systems,” said Mark Bruce at Hydromax. That need is going to continue to grow as more capital dollars get put back into infrastructure.” Bruce continued, “Cities will want to spend the capital wisely. If you have 1,000 miles of pipe, where do you start? You can’t just start digging. They need help in the finding the leaks, engineering the solutions, and repairing the pipes. Simply stated, that is what we do.”

Technology is helping to address these needs. Hydromax is developing P-CAT, a proprietary technology that performs condition assessment on pipelines. The company also deploys technology for satellite leak detection, which offers a leak survey component to water.

The Gas market is regulated under the Pipeline and Hazardous Materials Safety Administration (PHMSA), Distribution Integrity Management Planning (DIMP) program, and 811, which govern excavation methods and procedures. Federal regulations predominantly govern safety and damage prevention and are implemented by state organizations, according to Bruce, commenting, “We often inspect sewers to determine whether gas company contractors have drilled pipes using trenchless technologies to install new gas lines. Gas utilities have had a lot of explosions resulting from gas lines inside of sewers.” He added, “Fundamentally, the gas utilities need to know the condition and the location of their assets. And 30 to 40 percent of their maps are bad. They don’t know where their assets are.”


“The EPA is moving down in the system

a lot deeper than they were”



“In the Gas industry, it is all risk-driven. It is risk to the community. It is risk to the reputation of the utility,” said Mark Burel at Hoffman Southwest. “The federal government has intervened requiring utilities to repair underground gas lines. Every time there is an incident, and there have been a few this year, it puts more pressure on safety and compliance.”

Proposed EPA revisions to the Lead and Copper Rule (LCR) specifying lead service line replacement. To replace the country’s existing 7 million to 11 million lead service lines would cost an estimated $30 billion, said Scott Pruitt, former EPA Administrator, testifying to Congress at the House Energy and Commerce Committee hearing in December 2017. Pruitt declared a “war on lead” in response to the Flint water crisis. Revisions to the LCR were initiated by the Obama administration which proposed more stringent standards for replacing aging lead pipes. The Trump administration is reportedly targeting the Spring of 2019 to update the rule, reported the Washington Examiner.

“I got the sense there really is a serious undertaking at the EPA to revise the Lead and Copper Rule,” said Steve Via, director of federal relations for the American Water Works Association, to the Washington Examiner. “I took the ‘war on lead’ as being lead is a public health concern, and this administration has placed an emphasis on contaminants that have a public health impact.”

Pruitt was replaced by acting EPA Administrator Andrew Wheeler in July 2018. “Lead exposure is a calamity that disproportionately harms children and low-income communities,” said Wheeler during an EPA press conference, reported

the Washington Examiner. “The Trump administration is committed to combating the problem head on.” In December 2018, the Trump administration introduced a “federal lead action plan” which will employ a multi-agency strategy to tackle the issues.

Proposed EPA Revisions to the PCB Mega Rule mandating reduction of PCBs in pipeline systems could cost the industry “…tens, and potentially hundreds, of billions of dollars according to the American Gas Association…” reported Underground Construction. The proposal would require utilities to spend billions for testing and replacing contaminated pipelines. A key concern of industry, stipulated in the EPA’s advance notice of proposed rulemaking (ANPRM), is the proposal to end “…the use authorization for PCBs at concentrations > 1 ppm in these systems by 2020 or an earlier date.”

The PIPES Act of 2016 establishes measures for greater safeguards surrounding the country’s 2.6 million miles of energy pipelines, including the requirement for certification, data management, testing, and mapping of underground infrastructure. “Everyone has seen this coming, so no one is shocked or panicking, but clearly they are picking up the pace of creating new processes and are willing to understand how new technologies can help to meet these new demands,” commented Troy Taggart, president of Geospatial Corporation. “The expected changes will impact data management, sharing, and demand, which, in addition to pipelines, will include facilities. Energy companies across the country have been expecting this and


“Water departments... know

where their assets are, but they still

have to go out and locate the problems with their systems.

They need help in the finding the

leaks, engineering the solutions, and

repairing the pipes”

2 9



have been exploring solutions that include more accurate data collection that will blend with their existing data sets that reside in legacy systems.”

CHALLENGES

TALENT. Labor is tight, insiders said, and may present a formidable obstacle to growth. “We are hearing that concern across industries. It is just hard to find people,” said Steve Lacy at Hydromax.

“Labor has been a challenge for quite some time, and it’s getting worse,” remarked Mark Burel at Hoffman Southwest. “As you are hiring into these types of industries, you are at the lower end of the pay scale. Sourcing is becoming more difficult. Turnover is very high and has continued to move up, which is affecting margins. Labor is absolutely the biggest challenge out there.”

Badger Daylighting echoed these sentiments in the company’s FQ3 2018 earnings call, with remarks from CEO Paul Vandenberg: “We could have realized more than the top line 20 percent revenue growth in Q3 versus last year if we could have found and trained all the operators we needed.”

“Getting people to work in the industry and not go straight to college is going to be a big problem,” said Lacy. “It is not an easy job. Our crews are required to travel. They are working in dirty sewers with computers and must understand how to upload data to a server 20 states away. We have to get wages up and be competitive.”

Municipalities polled by Underground Construction in the 21st Annual Municipal Sewer and Water Infrastructure Survey identified lack of qualified labor as a top

concern. “We’re having a real problem with finding capable replacements for our retiring personnel,” said an upper Midwest respondent. A city official from the Northwest concurred, saying, “Finding qualified and experienced people is almost impossible right now.”

“The labor market is at effective full employment. It is harder than it has been in the past to find talent, competing at near full employment levels, regionally, and nationally. Employment shortages are highly dependent on the overall economy. I don’t know how long this period will last,” commented Tom Barr at ISG.

Retiring boomers are resulting in a dynamic change in the workplace, requiring new approaches to training a new generation of water treatment professionals, believes Barr.

The millennial workforce has changed hiring dramatically, believes Burel. “Millennials are not signing up to work 60-hour weeks. They are looking for a defined career path upon entry and require frequent communication to stay engaged. As an industry, we have to adjust how we think about the work environment or risk losing that market,” Burel said.

ECONOMY. The extended economic cycle has some insiders concerned about the timing of a downturn. With services tied to development in key markets such as energy and construction, a slowdown could present on obstacle to growth. “Economies go in cycles, and we’ve been on a long run of very strong economic growth. I am confident there is a tremendous amount of remaining runway for growth in our industry,” remarked Matt Aston at GPRS. “If there is any infrastructure stimulus, the likely destination for those dollars would be to utility and transportation improvements.


“Fundamentally, the gas utilities need to know the condition and the location of

their assets. And 30 to 40 percent of their maps are bad.

They don’t know where their assets

are.”



Given the volume of work required to make those upgrades, coupled with the increased adoption of our services, I don’t want to say that we will be insulated from an economic downturn, but I think that we will navigate it just fine.”

“Looking at the historical performance of the companies we have acquired, while they did not grow during the downturn, they did not see significant revenue declines, even in 2007 or 2008,” commented Tom Barr at ISG.

POLITICAL. “There will always be political challenges,” offered Barr. “Because water and wastewater infrastructure has always been neglected, the absolute need will never be fully satisfied.”

Nearly 80 percent of municipalities identified funding as a top concern in Underground Construction’s Annual Municipal Sewer and Water Infrastructure Survey. The survey examines trends affecting sewer, water, and stormwater piping infrastructure. In 2018 alone, the survey identified a $172 billion funding gap (additional funding exceeds current budget plans) to meet construction and rehabilitation of water and sewer infrastructure. Funding needs were segmented by sewer ($90 billion), water ($50 billion), and stormwater ($32 billion). In 2017, cities spent $18.6 billion on piping infrastructure and expect to spend $19.0 billion in 2018.

“We are anxious to see what happens with the infrastructure bills. I look at that as icing on the cake,” commented Mark Burel at Hoffman Southwest. “As long as the economy stays somewhat strong, there is enough regulatory pressure to drive demand for our services.”

M&A

Insiders speak to a significant level of activity with sellers exploring alternatives and actively engaged in strategic discussions. Even with the pool growing, the number of sizable targets to serve as growth platforms is limited so competition for assets is high.

A large number of businesses are facing generational changes which can pose challenges in transitioning management teams, executives said. “In many situations, you are dealing with small, family-owned businesses, so there may not be that deep bench to serve as leadership going forward,” remarked Burel.

Significant private equity capital has entered the market during the last three to five years in recognition of the industry’s favorable tailwinds and fragmentation. The adoption rate of a broader suite of services in the space has accelerated, and businesses are growing. The market is highly fragmented on a regional basis, so sponsors are seeing opportunities to build growth platforms and expand both organically and through acquisitions. A number of sponsors are pursuing buy-and-build strategies to create regional and national platforms and consolidate the market.


“In the gas industry, it is all risk-driven.

It is risk to the community. It is risk to the reputation of

the utility. Every time there is an incident...

it puts more pressure on safety

and compliance”

3 1



Valuations remain strong and market premiums robust for growth platforms with scale, market leadership, and service line diversification. In December 2017, Partners Group acquired United States Infrastructure Corporation (USIC) from Leonard Green & Partners (LGP) for $2.0 billion, valuing the business at an estimated 13.0x+ multiple of EBITDA. USIC is one of the largest pure-plays in infrastructure services specializing in utility locating. The company operates nationally with a team of more than 7,500 technicians. USIC has had an acquisitive history under private equity ownership, having completed six acquisitions since 2008, including its latest acquisition of On Target Utility Services in June 2018. Previous investors include Kohlberg & Company (2008), OMERS Private Equity (2010), and LGP (2013).

CIVC Partners announced the acquisition of Ground Penetrating Radar Systems (GPRS) in November 2017 and has completed three strategic add-on acquisitions, expanding its footprint into new and existing markets.

• Encompass Inspection Services (Phoenix, AZ) – Expanded existing footprint in Arizona, California, Texas, and New York, identified as rapidly-growing regions by the company.

• Structural Radar Imaging (SRI) (Seattle, WA) - Expanded footprint in Seattle, gaining the market leader in the region, and entered Hawaii, a new market for the company.

• National Ground Penetrating Radar Systems (Minneapolis, MN) - Expanded footprint in Minnesota, Wisconsin, and into the Dakotas. The company also has a presence in Florida, Colorado, Texas, and the DC region, extending to Virginia and Maryland.

“We think there is definitely opportunity for acquired growth. It is something that we are looking at closely,” said Matt Aston. Key to his role as CEO is maintaining communication with regional competitors to explore their acquisition interests. “We’ve seen a remarkable level of interest at this time.” GPRS is actively looking for add-on acquisitions in its core utility locating and concrete scanning service areas, as well as adjacent markets that are complementary to its existing offering.

Infrastructure Services Group, LLC (ISG) was launched in February 2018 as a growth platform to acquire companies that specialize in water and wastewater pipeline and manhole inspection, maintenance, and rehabilitation for municipal, industrial, and private clients. Financial sponsors include Juniper Capital Management and ORIX Mezzanine & Private Equity. Water and wastewater industry veteran Tom Barr is the Founder of the newly-formed company.

ISG’s geographic focus is east of the Mississippi, “…and that is because we understand the challenges that region is going to face,” commented Barr. “This is a regional play. We are going to keep a very localized presence with a national opportunity. There is value in a local presence.”


“Economies go in cycles, and we’ve

been on a long run of very strong

economic growth. I am confident there

is a tremendous amount of remaining runway for growth in

our industry”



At platform launch, ISG announced the acquisitions of Vermont-based Green Mountain Pipeline Services and Mr. Rehab Sewer System Rehabilitation, located in Pennsylvania, with combined revenue of $32 million. Both companies cover a 250-mile radius service area. Green Mountain covers New England, New York, and into Pennsylvania. Mr. Rehab covers parts of the Mid-Atlantic. Geographically, Pennsylvania is the touchpoint where the two companies meet. Collectively, the company founders have supported their local markets for more than 30 years.

Barr speaks to a robust pipeline of “25 to 30 additional potential acquisitions”. ISG stated the goal of completing at least two acquisitions a year.

Local owners are given the opportunity to participate in the transaction and retain a significant ownership stake in the company. Best practices are shared, but the owners are given significant day-to-day autonomy for the operating companies. “Corporate is there to support the operating units with growth capital, management metric tools, buying power, and so on,” said Barr. “As goes the success of the field, so goes the success of the company. And it is our job is to make sure they have all they need to be successful.”

Hydromax recently expanded its geographic reach with the acquisition of Miller Pipetech in April 2018, gaining a Pittsburgh location and a regional presence in five states, including Pennsylvania, Ohio, New York, Michigan, and West Virginia, serving to bolster its service area in the Midwest and East Coast.

In addition to its headquarters in Evansville, Indiana, the company also has offices serving the Seattle, Washington DC, Louisville, and Detroit markets. “We are actively looking for acquisitions and see Hydromax as an attractive platform, remarked Steve Lacy. “The Miller Pipetech acquisition aligns well with management’s vision for growing Hydromax,” said Steven Wacaster, Managing Partner at Warren Equity Partners, in a press release announcing the transaction.

Hydromax has been backed by WEP since 2016. “Hydromax provides its utility and municipal customers with unique, digital asset management solutions that advance their evolution towards GIS enterprise systems. Miller Pipetech gives the company a new avenue for expanding those solutions into the market.”

Hydromax is broadening the scope of acquisition targets under consideration, particularly as the company continues to expand its foothold in infrastructure data collection solutions, with software and other technology companies now in play.

Professional Pipe Services, dba Hoffman Southwest, was acquired by Orix Capital Partners in January 2017. The company accelerated its acquisition search this year, said CEO Mark Burel, speaking to its M&A strategy: “We have strong relationships with national and regional engineering firms, which has allowed us to open branches in new cities to support them. As a result, we have been able to grow the business organically alongside our customers. The next step is acquisitions.”


“The wastewater infrastructure

market has been a focus for us, and

we have built a strong brand in the

Western United States. We’d like

to build a business nationwide”

3 3



“Our M&A strategy is two-fold. We are looking at acquisitions and saying, can we grow geographically or add a new service line through an acquisition and then bring it to the rest of the business?” offered Mark Burel at Hoffman Southwest (HSW).

“Our customers are outsourcing more, so we are looking to add services to be that one-stop shop. We also want to grow geographically. The wastewater infrastructure market has been a focus for us, and we have built a strong brand in the Western United States. We’d like to build a business nationwide,” Burel added.

This February, HSW acquired Tri-State Utilities Company, a provider of trenchless repair, rehabilitation, inspection, and other maintenance services for the municipal utility market. The Virginia-based company extends HSW’s geographic footprint into the Mid-Atlantic and Southeast.

Disciplined buyers are finding valuations challenging in today’s elevated pricing environment. “There are few large players in our space, so when there is a company of size, the process gets very competitive. Some of the opportunities that we passed on sold for multiples that made us scratch our heads,” said Burel.

Blake Kuhlenschmidt, Director of Corporate Development at HSW, added, “While we are continuing to look for deals, we have enough opportunities organically to grow the business that we are not pressured to do an acquisition at any valuation. Discipline has been the key for us.”

Liquidity will continue to be a driver of M&A activity. The significant influx of private equity capital, including funds earmarked for infrastructure, needs to be deployed into new investments. “There is more investment capital seeking opportunities in the infrastructure marketplace than there are quality deals,” observed Tom Barr at ISG. “The equity sponsors that believe in the infrastructure marketplace are participating if they can.”


“There is more investment

capital seeking opportunities in

the infrastructure marketplace than there are quality deals. The equity

sponsors that believe in the infrastructure

marketplace are participating if they

can”



MAR-18

FEB-18

FEB-18

MAR-18

OCT-17

Hydro Excavation Services Operations

MAR-11

SE

LE

CT

ED

INV

ES

TM

EN

T A

CT

IVIT

Y U

ND

ER

GR

OU

ND

INF

RA

ST

RU

CT

UR

E

Sources: S&P Capital IQ, PitchBook, Equity Research, public data.

FEB-19

DEC-17DEC-17

APR-18

NOV-17

APR-18JUN-16

DEC-18

SEP-14

FEB-16

JUL-17

TARGET ACQUIRER RECENT ADD-ON ACQUIS I T I ONSDATE

DEC-17 JUN-18

JENNINGS ENGINEERING JUN-18

JUN-17SEP-18

DEC-18

MAY-18

JUN-18


FEB-18

JAN-17 FEB-19

3 5



• Acquired by CIVC Partners in November 2017

• National provider of utility locating and concrete scanning services

• Private sector clients include environmental services consultants,

contractors, and engineering firms

• Completed three add-on acquisitions since April 2018, including

Encompass Inspections, adding scale to GPRS’ existing business in

Arizona, California, Texas, and New York

• Acquisitive growth is a stated objective of the partnership

“GPRS is the leading national provider of private utility locating and concrete scanning services and operates in a core area of specialization for CIVC. We are very excited to partner with Matt [Aston] and look forward to working alongside his team to support the company’s next stage of growth.” - J.D. Wright, Partner, CIVC Partners

GEOGRAPHIC FOOTPR INT

SELECTED ACQUIS IT IONS


UT

ILIT

Y L

OC

AT

ING


Hydro Excavation Services Operations

• Platform launched in September 2014 to make investments in the hydroexcavation services industry with backing from Oaktree Capital Management

• Vac-One is continuing its stated plan to execute an aggressive strategy toward becoming a national hydroexcavation services provider through organic growth and selective acquisitions

• March 2018 – Acquired Kantex Companies, expanding into cathodic protection. Kantex provides cathodic protection and vacuum excavation services to the oil and gas, civil, and municipal markets

• October 2017 – Acquired the hydroexcavation services operations of Crossfire. The buy builds on Vac-One’s presence in Texas and eastern New Mexico and extends its geographic reach into western

New Mexico and Colorado

EX

CA

VA

TIO

N

“The hydroexcavation market has matured to the point where simply having a truck available is not sufficient. Customers demand significantly more value in areas such as safety, reliability, and productivity. Our experience leading similar high-growth service providers will allow Vac One to scale its presence across North America.” - Rob Karam, Jr., Oaktree Capital



PIP

EL

INE

IN

FR

AS

TR

UC

TU

RE

• Warren Equity Partners completed a minority equity investment in 2016

• Specializes in infrastructure data collection for assessing the condition of water, wastewater, and natural gas conveyance systems

• March 2018 - Acquired Miller Pipetech, which serves customers in Pennsylvania, Ohio, New York, Michigan, and West Virginia, strengthening Hydromax’s footprint in the Eastern and Midwestern

United States

“As a provider of differentiated services to the water, wastewater, and natural gas markets, Hydromax is a great fit into one of our key strategic investment verticals, the infrastructure services sector.” - Steven Wacaster, Warren Equity Partners





• Platform formed in February 2018 to pursue strategic acquisitions in the water and wastewater pipeline infrastructure sector with backing from Juniper Capital Management and ORIX Mezzanine & Private Equity

• Services include trenchless cleaning, maintenance, and repair and rehabilitation of water and wastewater pipelines and associated manholes

• ISG is pursuing a regional consolidation strategy targeting rehabilitation of municipal sewer systems east of the Mississippi

“We are delighted to team up with this investor group to create a platform for strategic water infrastructure investments, and to have Green Mountain and Mr. Rehab as our first completed deals under this platform. With ISG’s guidance, and the continued involvement of company management, these companies are poised for strong growth over the coming years.” - Lou Grabowsky, Co-founding Partner, Juniper Capital Management




PIP

EL

INE

IN

FR

AS

TR

UC

TU

RE

• Acquired by ORIX Capital Partners in January 2017

• Provides a broad array of underground infrastructure, plumbing, drain cleaning, and water restoration services via Pro-Pipe and RotoRooter

• The Pro-Pipe division provides video inspection, cleaning, and rehabilitation of pipelines (trenchless pipe repair) to public and private customers and has become a trusted leader of natural gas companies for the identification of cross bores in lateral lines

• February 2019 - Acquired Virginia-based Tri-State Utilities, a provider of trenchless repair, rehabilitation, and inspection services for he municipal utility market in the Mid-Atlantic and Southeast

PIP

EL

INE

IN

FR

AS

TR

UC

TU

RE

PIP

EL

INE

IN

FR

AS

TR

UC

TU

RE

“Our country’s aging infrastructure will drive enormous demand for underground infrastructure risk mitigation as municipalities and utilities work to ensure our pipes are functioning safely and properly for the public. We will seek strategic add-ons which will complement HSW’s historically strong organic growth and support [Mark] Burel’s team in building a long-standing legacy, known for customer-focused service, safety, technology, and industry leading insights and initiatives.” - Teri Suzuki, CEO, ORIX Capital Partners

• Acquired by Platform Partners in December 2017

• Provider of turnkey trenchless rehabilitation solutions for the water, sewer, and industrial marketplace. Services include turnkey bypass and dewatering, large diameter structural relining, pipe bursting and slip lining, structural and corrosion protection, trenchless robotic systems, pipe and drain cleaners, and industrial facility maintenance and renewal

• February 2019 - Acquired The Ted Berry Company, a Maine-based trenchless rehabilitation solutions provider, extending its service reach in the Northeast

• February 2018 - Acquired Stag Technologies, a manufacturer of high-performance coatings used in water, wastewater, industrial infrastructure rehabilitation

“We look forward to our partnership with Vortex and its executive management team. We are impressed with how quickly they have built Vortex, not only into a driving force in the trenchless infrastructure industry, but also in their approach to the marketplace as a turnkey solutions provider.” - Brad Morgan, President, Platform Partners


3 7



• Acquired by RLJ Equity Partners in December 2018

• Services include hydroexcavation, storm and sewer maintenance,

pipe/line jetting, industrial vacuum cleaning, CCTV inspection,

commercial sweeping, and tank rental

• RLJ will pursue a regional expansion strategy building on

Pro-Vac’s market leadership position in the Pacific Northwest



EX

CA

VA

TIO

N

• Acquired by J.F. Lehman & Company in December 2018

• Provides trenchless pipe rehabilitation solutions and technology to the municipal wastewater and storm water markets

• Services customers in the aerospace, defense, maritime, government, and environmental sectors

• November 2018 - Acquired Daystar Composites, a provider of cured-in-place pipe (CIPP) liners and products, to build on its capabilities as a national leader in CIPP lining technology and trenchless pipe rehabilitation

PIP

E IN

FR

AS

TR

UC

TU

RE

“We believe IPR has significant opportunities for growth given the increasing demand for efficient, cost-effective solutions to service the critical, but aging, municipal wastewater and storm water infrastructure.” - Glenn Shor, Partner, JFLCO


Sound Tanks & Containers



INDUSTRY METRICS

3 8 E I S I N S I D E R | I N D U S T R Y M E T R I C S

PUBLIC COMPANY OPERATING METRICS

NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 3/1/2019.(2) Market Capitalization is the aggregate value of a �rm's outstanding common stock.(3) Enterprise Value is the total value of a �rm (including all debt and equity).Source: S&P Capital IQ.

($ in millions, except per share data) Current % of Market Enterprise Total Debt/ TTMCompany Name Country Ticker Stock Price (1) 52W High Capitalization (2) Value (3) Revenue EBITDA EBITDA Revenue Gross EBITDA

INDUSTRIAL SERVICES - PLANT SERVICES

John Wood Group PLC LSE:WG. $7.08 66.8% $4,758 $6,360 0.8x 14.1x 7.9x $8,367 11.7% 5.0%

EMCOR Group, Inc. NYSE:EME 72.51 88.4% 4,060 3,993 0.5x 8.2x 0.6x 8,131 14.8% 6.0%

Bilfinger SE DB:GBF 38.64 72.7% 1,680 1,596 0.3x 18.5x 8.3x 4,755 9.4% 1.5%

Primoris Services Corporation NasdaqGS:PRIM 23.46 81.2% 1,190 1,412 0.5x 6.3x 1.7x 2,939 11.1% 7.6%

Matrix Service Company NasdaqGS:MTRX 20.92 81.2% 560 489 0.4x 22.9x 0.0x 1,198 7.3% 1.8%

Team, Inc. NYSE:TISI 15.90 62.2% 478 839 0.7x 27.1x 12.2x 1,253 25.9% 2.5%

Mistras Group, Inc. NYSE:MG 16.13 68.3% 460 607 0.8x 9.7x 2.6x 749 30.4% 8.4%

Median $20.92 72.7% $1,190 $1,412 0.5x 14.1x 2.6x $2,939 11.7% 5.0%

Mean $27.80 74.4% $1,884 $2,185 0.6x 15.2x 4.7x $3,913 15.8% 4.7%

INDUSTRIAL SERVICES - FIELD SERVICES

Veolia Environnement S.A. ENXTPA:VIE $22.03 93.2% $12,183 $24,479 0.8x 7.0x 4.9x $29,667 16.4% 11.3%

Quanta Services, Inc. NYSE:PWR 35.94 96.0% 5,082 6,110 0.5x 7.8x 1.3x 11,171 13.2% 7.5%

Clean Harbors, Inc. NYSE:CLH 68.77 94.9% 3,841 5,134 1.6x 10.6x 3.3x 3,300 30.1% 14.6%

ABM Industries Incorporated NYSE:ABM 36.01 93.8% 2,384 3,284 0.5x 10.7x 3.1x 6,442 10.8% 4.7%

Comfort Systems USA, Inc. NYSE:FIX 53.63 89.6% 1,977 2,009 0.9x 10.5x 0.4x 2,183 20.4% 8.8%

Badger Daylighting Ltd. TSX:BAD 28.96 99.8% 1,046 1,101 2.6x 10.4x 0.7x 442 30.8% 24.6%

Heritage-Crystal Clean, Inc NasdaqGS:HCCI 25.03 87.2% 577 560 1.4x 13.0x 0.7x 399 22.6% 10.8%

Aegion Corporation NasdaqGS:AEGN 17.76 66.3% 574 820 0.6x 8.3x 3.1x 1,334 20.2% 7.4%

MYR Group Inc. NasdaqGS:MYRG 33.27 81.5% 551 644 0.4x 7.5x 1.1x 1,458 11.1% 5.9%

IES Holdings, Inc. NasdaqGM:IESC 18.50 91.4% 391 403 0.4x 9.7x 0.7x 922 17.2% 4.5%

Limbach Holdings, Inc. NasdaqCM:LMB 5.38 38.4% 41 80 0.2x 10.0x 4.9x 527 11.5% 1.5%

Median $28.96 91.4% $1,046 $1,101 0.6x 10.0x 1.3x $1,458 17.2% 7.5%

Mean $31.39 84.7% $2,604 $4,057 0.9x 9.6x 2.2x $5,259 18.6% 9.3%

SPECIAL WASTE

Stericycle, Inc. NasdaqGS:SRCL $51.63 72.3% $4,683 $7,441 2.1x 10.4x 3.9x $3,486 40.0% 20.5%

Darling Ingredients Inc. NYSE:DAR 22.07 97.6% 3,634 5,264 1.6x 8.9x 3.9x 3,388 21.9% 12.7%

US Ecology, Inc. NasdaqGS:ECOL 58.40 75.7% 1,287 1,619 2.9x 13.5x 3.0x 566 30.1% 21.3%

Secure Energy Services Inc. TSX:SES 6.48 91.1% 1,033 1,351 0.6x 10.5x 2.5x 2,153 5.3% 5.8%

Renewable Energy Group, Inc. NasdaqGS:REGI 26.47 81.4% 987 984 0.4x 3.3x 0.7x 2,444 15.5% 12.3%

Nuverra Environmental Solutions, Inc. AMEX:NES 10.65 40.2% 166 187 1.0x 115.5x 22.0x 195 17.1% 0.8%

Vertex Energy, Inc. NasdaqCM:VTNR 1.38 67.8% 55 104 0.6x 9.3x 2.1x 180 18.5% 6.2%

Perma-Fix Environmental Services, Inc. NasdaqCM:PESI 3.31 64.3% 40 42 0.8x 21.9x 2.3x 50 24.1% 3.8%

Median $16.36 74.0% $1,010 $1,167 0.9x 10.5x 2.8x $1,359 20.2% 9.3%

Mean $22.55 73.8% $1,486 $2,124 1.2x 24.2x 5.1x $1,558 21.5% 10.4%

SOLID WASTE - VERTICALLY INTEGRATED

Waste Management, Inc. NYSE:WM $101.00 99.2% $42,802 $52,768 3.5x 12.7x 2.4x $14,914 38.0% 28.2%

Republic Services, Inc. NYSE:RSG 78.52 99.6% 25,253 33,523 3.3x 12.2x 3.0x 10,041 38.4% 27.8%

Waste Connections, Inc. NYSE:WCN 83.71 98.4% 22,029 25,887 5.3x 16.7x 2.7x 4,923 41.7% 31.5%

Advanced Disposal Services, Inc. NYSE:ADSW 26.69 95.3% 2,367 4,263 2.7x 11.0x 4.9x 1,558 35.3% 24.8%

Casella Waste Systems, Inc. NasdaqGS:CWST 35.79 99.4% 1,664 2,206 3.3x 18.0x 4.5x 661 31.3% 18.5%

Median $78.52 99.2% $22,029 $25,887 3.3x 12.7x 3.0x $4,923 38.0% 27.8%

Mean $65.14 98.4% $18,823 $23,729 3.6x 14.1x 3.5x $6,419 36.9% 26.2%

SOLID WASTE - WASTE-TO-ENERGY

Covanta Holding Corporation NYSE:CVA $17.00 94.2% $2,216 $4,652 2.5x 13.8x 7.6x $1,868 30.5% 17.7%

Biffa plc LSE:BIFF 2.37 66.8% 592 1,035 0.7x 5.4x 2.6x 1,424 9.3% 13.3%

Renewi plc LSE:RWI 0.34 27.5% 270 1,085 0.5x 5.3x 4.7x 2,056 17.3% 9.7%

Median $2.37 66.8% $592 $1,085 0.7x 5.4x 4.7x $1,868 17.3% 13.3%

Mean $6.57 62.8% $1,026 $2,257 1.2x 8.2x 4.9x $1,782 19.0% 13.6%

ENGINEERING & CONSULTING

Jacobs Engineering Group Inc. NYSE:JEC $74.01 90.0% $10,326 $12,199 0.7x 12.7x 2.8x $16,284 18.8% 5.9%

AECOM NYSE:ACM 31.53 84.0% 4,922 8,176 0.4x 9.8x 5.1x 20,282 3.3% 3.8%

WorleyParsons Limited ASX:WOR 10.48 70.0% 4,841 3,391 1.0x 13.7x 1.8x 3,566 8.2% 6.9%

SNC-Lavalin Group Inc. TSX:SNC 27.57 59.4% 4,841 7,064 0.9x 16.8x 6.6x 7,390 5.6% 5.5%

Tetra Tech, Inc. NasdaqGS:TTEK 60.64 83.6% 3,348 3,545 1.6x 14.7x 1.1x 2,209 17.6% 10.9%

Stantec Inc. TSX:STN 24.16 91.4% 2,701 3,253 1.3x 12.2x 2.7x 2,459 54.1% 10.5%

Arcadis NV ENXTAM:ARCAD 16.78 76.9% 1,472 1,871 0.5x 8.9x 3.0x 3,727 17.1% 6.1%

NV5 Global, Inc. NasdaqCM:NVEE 80.24 83.0% 1,001 978 2.5x 19.7x 0.7x 397 48.6% 12.5%

RPS Group plc LSE:RPS 2.41 65.0% 528 625 0.7x 7.4x 1.4x 812 8.8% 10.1%

Cardno Limited ASX:CDD 0.79 78.2% 357 435 0.5x 11.9x 3.7x 827 7.5% 4.5%

Ecology & Environment, Inc. NasdaqGM:EEI 11.66 80.7% 50 36 0.3x 6.6x 0.0x 106 44.7% 5.1%

Median $24.16 80.7% $2,701 $3,253 0.7x 12.2x 2.7x $2,459 17.1% 6.1%

Mean $30.93 78.4% $3,126 $3,779 1.0x 12.2x 2.6x $5,278 21.3% 7.4%

ENGINEERING & CONSTRUCTION

HOCHTIEF Aktiengesellschaft DB:HOT $159.63 87.6% 11,270 14,506 0.5x 9.1x 4.5x 27,344 5.9% 5.9%

WSP Global Inc. TSX:WSP 52.82 92.9% 5,534 6,216 1.1x 13.9x 1.8x 6,048 17.8% 7.6%

Fluor Corporation NYSE:FLR 37.44 60.3% 5,226 5,090 0.3x 6.8x 2.3x 19,167 3.5% 3.9%

MasTec, Inc. NYSE:MTZ 46.89 85.7% 3,506 4,888 0.7x 6.8x 2.0x 6,909 14.0% 10.1%

Tutor Perini Corporation NYSE:TPC 19.24 81.5% 964 1,588 0.4x 6.6x 3.2x 4,455 10.2% 5.4%

Great Lakes Dredge & Dock Corporation NasdaqGS:GLDD 8.74 96.0% 548 847 1.4x 7.8x 3.1x 621 19.4% 17.6%

Median $42.17 86.7% $4,366 $4,989 0.6x 7.3x 2.7x $6,479 12.1% 6.7%

Mean $54.13 84.0% $4,508 $5,522 0.7x 8.5x 2.8x $10,757 11.8% 8.4%

TTM MarginsEnterprise Value / TTM

3 9


INDUSTRY METRICS

3 9 E I S I N S I D E R | I N D U S T R Y M E T R I C S

SECTOR PERFORMANCE

SOURCE: S&P Capital IQ.Index: March 1, 2018 = 100.

SECTOR

OVERALL MARKET

1 Year

Industrial Services - P lant Services 5.0%

Industrial Services - Field Services -18.3%

Special Waste 4.1%

Solid Waste - Vertically Integrated 18.5%

Solid Waste - Waste-to-Energy -18.2%

Engineering & Consulting -4.5%

Engineering & Construction -8.6%

1 Year

S&P 500 5.8%

DJIA 5.8%

Nasdaq 4.7%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

Industrial Services - Plant Services Industrial Services - Field Services Special Waste

Solid Waste - Ver�cally Integrated Solid Waste - Waste-to-Energy Engineering & Consul�ng

Engineering & Construc�on

-20%

-10%

0%

10%

20%

Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

S&P 500 DJIA Nasdaq


GLOBAL ENVIRONMENTAL & INDUSTRIAL SERVICES

4 0 E I S I N S I D E R | A B O U T U S

FOCUS AREAS

• MSW

• C&D

• Wastewater Treatment

• Beneficial Reuse

• Containment Cleaning

• Equipment Rental and Sales

• Specialized Technology

• Collection and Handling

• Transfer Stations / MRFs

• TSDFs

• Landfills

• Incineration

WHO WE ARE

• Liquids

• Hazardous

• ODS

• Fats, Oils, and Greases

• Oilfield

• Independent investment banking advisory firm focused on the middle market since 1989

• Senior bankers with significant experience and tenure; partners average over 20 years of experience

• Offices in Chicago, Cleveland, and Philadelphia

• Founding member and U.S. partner of Global M&A Partners, Ltd., the world’s leading partnership of investment banking firms focusing on middle market transactions

• Deep industry experience across core sectors of focus, including: Consumer, Diversified Industrials, Environmental & Industrial Services, Healthcare & Life Sciences, Metals & Metals Processing, and Real Estate

Sell-Side Advisory

Acquisitions & Divestitures

Public & Private Mergers

Special Committee Advice

Strategic Partnerships & Joint Ventures

Fairness Opinions & Fair Value Opinions

All Tranches of

Debt & Equity Capital for:

Growth

Acquisitions

Recapitalizations

Dividends

General Financial & Strategic Advice

Balance Sheet

Restructurings

Sales of Non-Core Assets or Businesses

§363 Auctions

SPECIAL WASTES SOLID WASTES

The information contained in this publication was derived from proprietary research conducted by a division or owned or affiliated entity of Brown Gibbons Lang & Company LLC. Any projections, estimates or other forward-looking statements contained in this publication involve numerous and significant subjective assumptions and are subject to risks, contingencies, and uncertainties that are outside of our control, which could and likely will cause actual results to differ materially. We do not expect to, and assume no obligation to update or otherwise revise this publication or any information contained herein. Neither Brown Gibbons Lang & Company LLC, nor any of its officers, directors, employees, affiliates, agents or representatives makes any representation or warranty, expressed or implied, as to the accuracy, completeness or fitness of any information contained in this publication, and no legal liability is assumed or is to be implied against any of the aforementioned with respect thereto. This publication does not constitute the giving of investment advice, nor a part of any advice on investment decisions and nothing in this publication is intended to be a recommendation of a specific security or company, nor is any of the information contained herein intended to constitute an analysis of any company or security reasonably sufficient to form the basis for any investment decision. Brown Gibbons Lang & Company LLC, its affiliates and their officers, directors, employees or affiliates, or members of their families, may have a beneficial interest in the securities of a specific company mentioned in this publication and may purchase or sell such securities in the open market or otherwise. Nothing contained in this publication constitutes an offer to buy or sell or the solicitation of an offer to buy or sell any security.

LEADING INDEPENDENT FIRM COMPREHENSIVE CAPABILITIES

M&A ADVISORY PRIVATE PLACEMENTS

FINANCIAL ADVISORY

For questions about content and circulation, please contact editor, Rebecca Dickenscheidt, at [email protected] or 312-513-7476.

Primary Research

Industry Benchmarking

Operating Advisor Network

White Papers

Industry Surveys

RESEARCH

WA S T E & R E C YC L I N G

• Industrial Cleaning

• Plant and Equipment Maintenance

• Maintenance and Fabrication

• Turnaround and Outage

• Insulation and Coatings

• Scaffolding

• Support Services

• Testing, Inspection, and Certification (TIC)

• Safety and Compliance

• Production Optimization

• Environmental Engineering and Consulting

• Design Building

• EPC

• Auditing, Compliance, and Testing

• Sustainability

• Architecture and Engineering

• Health and Safety

• Hydroexcavation

• Pipeline Rehabilitation and Installation

• Remediation

• Emergency Response

• Utility Services

• Infrastructure Services

• Transportation & Logistics

• Commercial Services

FIELD SERVICES QUALITY CONTROL & EFFICIENCY

PLANT SERVICES

I N D U S T R I A L S E R V I C E S E N G I N E E R I N G & C O N S U LT I N G




DEDICATED LEADERSHIP

E F F R A M K A P L A NManaging DirectorGroup Head

• Leads BGL’s Environmental & Industrial Services practice

• Over 20 years of investment banking and corporate finance experience

• Former investment banking and consulting positions at KeyBanc Capital Markets and Capgemini

• B.S., Miami University

• M.B.A., The University of Chicago Graduate School of Business

PROFESSIONAL EXPERIENCE EDUCATIONEDUCATION

M I K E V I N C I G U E R R ADirector

EDUCATIONEDUCATION

• Over 12 years of investment banking and corporate finance experience

• Significant experience across the specialty contractor, waste, and field environmental service sectors

• Significant experience gained through over 70 M&A, leveraged recapitalization, and capital raise transactions

PROFESSIONAL EXPERIENCE

• B.S., Kelley School of Business at Indiana University

One Magnif icent Mile 980 N. Michigan Avenue Suite 1880 Chicago, IL 60611p. 312.658.1600

One Cleveland Center1375 East 9th StreetSuite 2500 Cleveland, OH 44114p. 216.241.2800

C H I C A G O C L E V E L A N D

One Liberty Place 1650 Market StreetSuite 3600 Philadelphia , PA 19103p. 610.941.2765

P H I L A D E L P H I A

EDUCATIONEDUCATIONB O B K E N TManaging DirectorFinancial Sponsor Coverage

• Over 20 years of M&A and corporate finance experience

• Former Managing Director in the Financial Sponsors Group at Stifel Investment Banking

• Investment banking positions at Banc of America Securities in San Francisco and Charlotte and at Brown Brothers Harriman in New York

PROFESSIONAL EXPERIENCE

• A.B., Princeton University

• Diploma in Accounting and Finance from the London School of Economics

• M.B.A., Darden School of Business at the University of Virginia

• Chartered Financial Analyst




REPRESENTATIVE TRANSACTIONS

One Magnif icent Mile 980 N. Michigan Avenue Suite 1880 Chicago, IL 60611p. 312.658.1600

One Cleveland Center1375 East 9th StreetSuite 2500 Cleveland, OH 44114p. 216.241.2800

C H I C A G O C L E V E L A N D

One Liberty Place 1650 Market StreetSuite 3600 Philadelphia , PA 19103p. 610.941.2765

P H I L A D E L P H I A


insider - bgl · 2019. 6. 12. · mergers & acquisitions activity trends in valuation...

Documents