Jeremy L. Dillon
RW Monitor
4/11/2014
US Ecology, Inc. this week announced that it has entered into an agreement to acquire EQ – The Environmental Quality Company, an environmental services and waste management company based in Wayne, Mich., with facilities throughout the Eastern United States. EQ is owned by an affiliate of New York-based private equity fund Kinderhook Industries, LLC. The transaction, valued at $465 million, is expected to close in the second or third quarter of 2014 and is subject to customary closing conditions, and a purchase price adjustment based on working capital. "The addition of EQ to US Ecology’s family of permitted facilities will provide us with an expanded environmental services platform, broadening our geographic footprint and providing for a greater array of services to better meet the needs of our customers," US Ecology President and CEO Jeff Feeler said in a statement.
U.S. Ecology’s interest in purchasing EQ is based, in part, on EQ’s East Coast roots, furthering its geographic reach. “The combination of our treatment disposal assets in the West and Canada and EQ’s sites and services focused in the East will position us closer to our customers throughout North America,” Feeler said during a call with investors held this week. “This is a perfect fit with respect to the geography due to EQ’s highly complementary treatment and disposal footprint. In addition to its landfill outside of Detroit, EQ owns several treatment and disposal facilities and service center that address a wide range of offerings including specialty recycling solutions and will expand opportunities for cross-selling and enhance our sales channel. ” Feeler also said that gaining these locations in the East will help enable better optimization of waste streams. “From having that network of treatment and disposal assets in the East, it will allow us a lot of opportunities to bundle services, be able to optimize waste streams, to send those to the right facilities, and help internalize some of the waste services from their service sector and service operations to some of our facilities,” Feeler said. “I think that there is a lot of opportunity there for optimization of waste flow.”
Purchase Could Double U.S. Ecology Revenue
From the financial side of the deal, U.S. Ecology appears set to double its revenue. Whereas U.S. Ecology brought in revenue of $201 million in 2013, the combined revenue from 2013 of the two companies equals $577 million. In terms of adjusted EBITA (earnings before interest, taxes and amortization), the combined companies would have had $126 million in 2013, compared to U.S. Ecology’s adjusted EBITA of $71 million. “While this transaction is very strategic, it also financially compelling,” U.S. Ecology Chief Financial Officer Eric Gerratt said during the investor call. “With 41 locations serving over 7,000 customers, we will create a platform with greater size and reach that will enhance our position in the industry and better serve customers.”
The deal also appears to help alleviate some of the competition worries that many in the industry raised in light of the news from earlier this year that Waste Control Specialists could begin accepting exempt waste into its RCRA landfill facility. Much of the waste that qualifies as exempt comes from the Army Corp of Engineers’ Formerly Utilized Sites Remedial Action Program, whose cleanup sites are predominately located on the East coast. Industry executives told RW Monitor that lowered transportation costs would attract the exempt waste to WCS due to its closer proximity than U.S. Ecology’s RCRA landfill in Idaho.