The environmental services industry is generally a stable investment due to the essential nature of its offerings. As a result, if you are in the industry and considering a transaction, the outlook looks to be in your favor, whether you are the acquirer or the acquired. In recent months, waste management and environmental services have come to the forefront of public interest with more consumers pushing for more sustainable practices.
This shift in focus is driving an increasing presence of environmental service subsectors. However, as the industry expands, it is simultaneously consolidating. Larger businesses are investing in the acquisition of niche companies who offer services that can help to round out their existing offerings.
Businesses in this sector tend to exhibit some key criteria that investors find attractive including high barriers to entry, demonstrated track records of organic and acquisitive growth, and a limited number of established regional and national organizations. For these reasons, 2019 could be the most advantageous year yet to sell or acquire a company in the environmental services industry.
Environmental Services Market Advantages
Perhaps the most beneficial element of the environmental services industry is the essential nature of the services provided. From waste disposal services to compliance and regulation training, this relatively small industry will continue to grow as technologies develop and new products come to market both for consumers as well as manufacturers.
Combined with the limited number of players in the game, this could help explain why there has been an explosive uptick in capital markets and private equity investment across a number of environmental services subsectors. As a result, the industry is prime for another wave of consolidation in the coming months and years as regional organizations look to combine in an effort to scale their services to a national level. In fact, this level of consolidation has already begun in certain subsections of the industry including industrial cleaning services and the wastewater space.
Environmental Services Market Challenges
However, the nature of these industries can be fairly technical and unique which leaves many employers with the challenge of not only finding employees capable of performing those tasks but also keeping them. As a result, many firms will need to become more creative in their talent acquisition tactics and proactive in keeping their existing employees happy as they vie for the attention of a limited pool of potential candidates.
One particularly effective way to find potential employees is to partner with local universities and trade schools with programs relevant to the services you offer. Developing and fostering relationships with program administrators can help you connect with talented students that might not be on your competitor’s radar yet.
Similarly, you may consider creating your own employee training initiatives and programs to help provide on-the-job training for new graduates to learn the business as well as for existing employees to further their skill set. While this typically requires a significant upfront investment on your part, your employees will recognize that you care about their future.
In addition to talent considerations, many environmental service firms may be too niche to thrive on their own. While this is great news for a larger company looking to acquire a smaller one, it is a challenge for that second organization. A lack of diversity in the services offered could impact the valuation of your company as standard business metrics may not indicate the true worth of your company. Investing in some new revenue streams prior to selling could help you achieve positive outcomes that would directly increase your negotiating power when the time is right.
How The Hatteras Group Can Help
The Hatteras Group is a collaborative team of professional intermediaries and advisors that guides business owners and entrepreneurs as they navigate the complex process of mergers or acquisitions in the environmental services industry. Generally, we work with those companies whose annual revenues are $5MM to $100MM.
If you are trying to value your business in an effort to sell it, we can help you audit the health of your company with an advanced 10-point evaluation checklist to determine if there are any issues that could potentially derail a sale in the future. Contact us today for more information!