Capstone Partners, a leading middle market investment banking firm, released its February 2022 Waste & Recycling Update, reporting that pandemic tailwinds, including the resurgence of per capita income and business activity, are expected to elevate waste volumes and provide a favorable outlook for the sector in 2022. In addition, consumer spending, which accounts for two-thirds of U.S. economic activity, is expected to remain high, supported by wage growth and ample savings, and bolster waste and recycling demand.

Construction and manufacturing activity have also trended upwards, supplementing healthy waste volumes. In addition, recycled material volumes are rising, driven by increased consumer awareness and environmentally-friendly policies in certain regions of the U.S. Growing demand for recycling services and circular economy solutions represent a promising opportunity for sector participants. Despite the favorable demand backdrop, the labor shortage is expected to challenge sector participants as elevated waste volumes drive overtime costs higher.

Sector merger and acquisition (M&A) activity surged in 2021, increasing 65% year-over-year (YOY), as buyers consolidated competitors to establish regional dominance and sellers sought to maximize take-home earnings ahead of a potential capital gains tax increase. Add-on deals and public strategic acquisitions accounted for the lion’s share of transactions as large players and private equity (PE)-backed companies executed roll-up strategies. Waste and recycling companies have increasingly sought financial support from PE firms in order to execute growth strategies and capture market share. Capstone expects buyers to continue to look for companies offering innovative solutions as automation, artificial intelligence, robotics, and machine learning technology become an integral factor in cost-cutting and green practice solutions.

“M&A activity surged in 2021 driven by pent-up deal demand, the desire for founders to seek liquidity, and the need for owners to position their companies for expanded growth opportunities. Profitable and growing companies that offer recycling, automation efficiency, and environmentally-friendly waste solutions are particularly attractive,” said Capstone Partners Managing Director, Doug Usifer, lead contributor in the newly released report.

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