Case Study: Value Creation in the Recycling Industry

The announcement of Waste Management’s acquisition of Greenstar Recycling provides perspective on the value created by the transformation work at Hudson Baylor executed by its leadership team and Zermatt Dusk. Based on the published figures of the press release, it appears that Hudson Baylor was acquired for a price per processed ton that was approximately 150% that of Greenstar, even when you account for the earnout that Waste Management included in the deal.

How was such a premium achieved? We believe there were 3 elements in our work that were differentiating. First, we developed a Capital Aware Growth Strategy for Hudson Baylor, a tailored strategy for growth that meets the benchmark of outside investors by optimizing the risk profile of the enterprise and by being sustainably profitable. When Hudson Baylor presented its strategy to the prospective acquirers, they stated that this was the direction they wanted to pursue as a firm and they raised their offer substantially.

The next step was to provide the organizational and operational alignment that would make the strategy feasible. Here’s where the consultant / leadership team partnership between Zermatt Dusk and Hudson Baylor was most evident. Together we redesigned the organization, introduced new performance metrics, implemented new functions such as research, and made significant improvements to marketing, and to operational and information systems.

The third element was to provide the firm with relative financial independence to pursue its growth strategy. Note the word ‘relative’: it is a fact that outside financing, whether debt or equity always comes with strings attached. The key is to execute financing that optimizes capital structure and that provides increasing financial freedom as the strategy develops. This is exactly what Hudson Baylor achieved through it’s low cost debt financing. Furthermore, its financial independence gave the company a strong bargaining position when it sat at the table to discuss M&A.

It is important to note that the 3 elements, Capital Aware Growth Strategies, organizational and operational alignment, and relative financial independence complement and reinforce each other to deliver a differentiated strategy that is more than the sum of its parts. When Hudson Baylor’s suitors realized that the company had a strong growth plan underway, an organization that had been streamlined to execute the plan, and the financial wherewithal to carry it out their only choice to pursue an acquisition was to offer a very substantial premium.

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