It is quite extraordinary to think that in 2015 Eamon Waters was actively considering the sale of Panda, the waste business he and his brother Noel founded with three trucks on a patch of ground behind the family’s petrol filling station in Beauparc, near Slane in Co Meath.
Waters, an energetic man then in his early fifties, had spent 30 years building up the business into the largest collector of waste in the greater Dublin area, with substantial waste processing and recycling facilities. It was profitable and growing, if extremely hard work.
Thoughts of an exit were not driven by boredom, or the prospect of an early retirement. Rather Waters sensed a bigger opportunity. The great financial crisis led to a property crash, and prime assets across the country were trading at a massive discount. Buyers were largely American distressed opportunity, or so called vulture funds. If Waters sold Panda, booking €70 million or more, then he could raise the capital to make a proper killing.
Despite entering negotiations with a small listed UK company, Waters ended up keeping his waste business. It proved a very astute move. Panda is now part of Beauparc Utilities, which is being sold for an astonishing €1.3 billion to Macquarie Infrastructure and Real Assets (Mira).
Having sold a 37.6 per cent stake in Beauparc two and a half years ago to Blackstone, the world’s largest private equity firm, if the deal completes Waters’s net worth will edge close to €1 billion, thanks to a business he considered selling just six years ago. Few property deals could have delivered that.
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Yet it took some vision to see future wealth in waste. Beauparc was valued at just €37 million at the end of 2016 after its creation though the merger of Panda and Greenstar, its biggest rival. In five years its value has increased 35-fold.
As Mira now looks to raise debt to fund the acquisition, details of the operations are starting to emerge that illustrate why Waters made the right decision.
The utter transformation is rooted in three significant developments. The first is the merger with Greenstar; the second the opening of the Covanta incinerator in Ringsend in Dublin; and finally, a diversification strategy which has deepened Beauparc’s reach into the recycling and waste recovery industry and broadened its activities into the UK and the Netherlands markets.
Like many great business legends, it started with a bankruptcy. Greenstar was an inadvertent victim of the property collapse. A subsidiary of NTR, the infrastructure group started by Tom Roche, who also founded the cement multinational CRH, it became reliant on burying construction waste in its landfills.
In early 2014 a consortium of banks, owed collectively over €80 million, appointed a receiver, much to the chagrin of NTR. The receiver sold Greenstar to the vulture fund Cerberus for €10.7 million. Two years later the fund struck a deal to sell the business to Panda for €25 million.
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Waters raised the money from Bank of Ireland. A trickier task was getting it past the Competition and Consumer Protection Commission (CPCC), which investigated the deal for almost a full year.
Panda had operations in Co Meath and Dublin. Greenstar was a nationwide operation, with waste transfer facilities in Cork, Limerick, Kilkenny, Wexford, Waterford and Sligo. It added 80,000 household and, more crucially, 15,000 commercial and industrial customers to Panda’s operations.
A number of submissions to the CPCC raised concerns about the effect of the merger. It was stated that Panda had already agreed to provide about half of the waste fuel needed for the new incinerator at Ringsend in Dublin’s docklands. The merger would create “a near monopoly” of supply. On residential collection, there were big concerns on the effects of the merger on competition.
After a thorough investigation the CPCC passed the deal, seeking concessions: the sale of Greenstar routes in Dun Laoghaire-Rathdown and Fingal, where the combined entity would have had a 95 per cent share of households.
The merger created a dominant player in Irish waste. According to S&P, a credit ratings agency, Beauparc is an undisputed market leader; its market shares are 2.6 times and 3.6 times larger than its nearest competitors in collection and processing. It is also the only nationwide operator, with 20 facilities and a processing capacity of 2.9 metric tonnes a year, or roughly one third of the market’s total capacity.
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Its weight confers a big competitive advantage, allowing Beauparc to secure “a steady intake from third-party collection companies that do not have their own infrastructure to process waste collection”. This tight control of waste flows enables Beauparc to secure long-term, fixed-price contracts with treatment operators, principally Covanta in Ringsend. According to S&P, 98 per cent of Beauparc’s 2020 volumes of refuse fuel feedstock are secured out to 2027.
Its huge share of processing also ensures that returns from recycling materials are stable and protected, through a cost pass-through model. This means the gate fee charged to a customer to recycle the waste rises if the market price of the recycled commodity, plastic or paper, falls.
Beauparc’s profit margin on processing is 20 per cent, yet this pales in comparison to the returns made on residential waste collection in Ireland. With 20 per cent of the market, Beauparc’s share of bin collection equals that of the three top residential players in the UK combined.
Its profit margin of 35 per cent has raised a lot of eyebrows among prospective backers of the Mira deal.
S&P refers to “the unique set-up” in the Irish market, where waste companies deal directly with the domestic customers, rather than a local authority. In flagging risks, Moody’s, another ratings agency, highlighted “political intervention given past discussions of economic regulation of the residential waste collection sector”. That debate has been led by the CPCC, which called for reform in 2018.
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The concentration of its customers in Dublin, in densely populated areas, means Greenstar and Panda benefit from superb route efficiency. Beauparc operates its own truck maintenance division, servicing a huge fleet of trucks. Its sheer scale makes it difficult for small local operators to penetrate. Beauparc’s churn rate, the proportion of customers it loses each year, is a measly 0.5 per cent.
Ireland’s small market size, noted Reorg, a credit intelligence website, also arguably protects Beauparc from international competition on collection.
Its dominance locally has been the spur for the group’s international expansion. Before the Greenstar deal was even passed by the CPCC, Waters had inked its first deal in the UK: New Earth Solutions, a Dorset-based waste processor. The waste market in the UK remains hugely fragmented, and Beauparc has bought business in the midlands and northeast of England and Scotland. In the past ten years Waters and his team have successfully integrated 19 acquisitions in Ireland, the UK and Holland.
It has steered away from the residential collection business in the UK, processing waste for local authorities and commercial and industrial customers. It has won several long-term contracts with local authorities, and S&P reports that its success rate on processing tenders is an impressive 75 per cent. Even if the Irish government revisits the residential collection model, S&P says Beauparc is well positioned to benefit from “regulatory tailwinds” across the rest of its businesses.
A substantial investment programme since 2016 has been focused on material recovery and recycling, chiming with the EU’s drive to create a circular economy. Only about 1 per cent of the waste Beauparc collects goes to landfill.
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Big ticket capital projects include two £30 million projects at Cotesbach and Barkston in Leicestershire and Lincolnshire respectively. The Cotesbach site will shred, wash and pelletise low-density polyethylene material. The Barkston plant will be a large materials recycling facility. In Ireland it is planning to construct a facility to handle non-clinical hospital waste at Millennium Park in Co Kildare.
Mira is paying a hefty price for the potential of the business. It is a long-term investor; its projections for Beauparc are for the business to reach €1 billion in revenues and €246 million in earnings by 2030.
All from two businesses that just six years ago had a very uncertain future.