Acquisitions in the spotlight part one: Bingo Industries

Waste Management Review talks to some of Australia’s largest waste management companies about the role of scalability in the future of the waste sector. 

This article is the first in a three part series featuring Bingo Industries, Cleanaway, Corio Waste Management and SUEZ. 

Over the past few years, Australia’s waste management giants have looked to becoming vertically integrated businesses. One of Australia’s largest waste management companies, Cleanaway acquired health and waste disposal giant Toxfree in 2018.

Most recently, building and demolition (B&D) market leader Bingo Industries acquired Dial A Dump Industries (DADI) and set its sights on building a resource recovery park as part of the acquisition.

Cleanaway has also looked to potentially take on SKM Recycling after acquiring its debt for $60 million.

Waste Management Review explores the role of scalability and vertically integrated business models in the waste sector’s future.

BINGO TAKES IT TO THE NEXT LEVEL

Daniel Tartak, Bingo Industries Managing Director, believes that further market consolidation will support the waste industry during a challenging phase.

“The industry is still very fragmented. We’ve seen consolidation in the last few years, but there still needs to be some more consolidation over the sector across the country,” Daniel tells Waste Management Review.

“It still remains very competitive, even following these acquisitions [DADI and Toxfree]. I don’t think much is changing in the industry.”

Daniel says Bingo’s DADI acquisition allows the company to compete with the multinationals on a greater scale with vertically integrated assets. He says it comes at a critical time for the sector where recycling infrastructure investment is needed at a greater level.

“There’s many small players who don’t invest into their business and the sector, and right now we need that,” he says.

“We’ve done it to a large extent over the last few years. We’ve poured almost $1 billion into acquisitions and key infrastructure so as some of the smaller players start getting amalgamated or consolidated you will see more investment.”

Bingo Industries agreed to divest its recycling facility in Banksmeadow, NSW to ease ACCC competition concerns regarding its $578 million acquisition of DADI. The ACCC required Bingo to divest the facility to maintain competition for B&D processing in Sydney’s eastern suburbs.

Following this, the ACCC announced it would not oppose the acquisition after accepting a court-enforceable undertaking from Bingo to divest its Banksmeadow processing facility. CPE Capital was announced as the buyer for $50 million in September.

In announcing the company’s full-year results in August, Daniel noted that the asset base secured through the acquisition would transform the business for many years to come. Some of its most recent redevelopments include Bingo’s first recycling centre in West Melbourne, Victoria, having first entered the market in 2017 through several strategic acquisitions.

Its total network capacity, including contribution from the DADI acquisition, increased from 2.2 million tonnes in financial year 2017-18 to 3.8 million tonnes in 2018-19. It will be closer to 4.4 million tonnes by the end of 2019-20 allowing for Patons Lane and Mortdale redevelopments.

In 2019, Bingo reconfigured its NSW network as part of the DADI integration by rationalising some sites and converting others into transfer stations in a move to attract and aggregate waste volumes for processing at its advanced recycling centres.

Bingo expects solid growth in 2019-20 underpinned by a full-year contribution from its Patons Lane Recycling Centre and Landfill, West Melbourne Recycling Centre and DADI. The business also expects to benefit from the Queensland waste levy and associated pricing increases.

Bingo Industries, through the acquisition of Dial A Dump Industries, has set its sites on building a Resource Ecology Park in the middle of western Sydney.

Through Eastern Creek, Bingo is turning its attentions to building an 82-hectare Recycling Ecology Park in the middle of western Sydney to accept putrescible and non-putrescible waste at a large scale.

Strategically positioned near the Western Sydney Airport and the Sydney CBD, it currently can handle two million tonnes per annum and in the future will comprise a new C&I processing facility, refuse-derived fuel, alternative waste treatment facility and new recycled product manufacturing facility.

Daniel says that the new $60 million C&I processing facility at Eastern Creek, comprising the most sophisticated equipment in the world, should be operational in about 12 months’ time.

He points to the importance of a vertically integrated business model to maintaining a chain of custody on the movement of waste. Likewise, he notes a vertically integrated company allows for scalability.

“When you become a large business, the fact that you have a large quantity of waste can sometimes work to your detriment, so controlling access to collections, transfers, recycling and landfill gives you control over your business,” he says.

On questions of whether one company owning multiple assets is reducing choice for customers, Daniel says that this would only potentially be the case in a duopoly structure.

“You have six large players so there is plenty of choice even if companies control those assets. Even with consolidation over the last few years, the market is very fragmented. There’s still six big players and hundreds of small players.

“Every time you tender, you are facing five big opponents and a heap of different small private companies.”

Daniel says that through Bingo’s five-year plan, the company plans to build multiple recycling facilities. He says these will be able to handle all waste streams in the market from putrescible MSW, C&I waste to non-putrescible, C&I and B&D waste, separating them and then turning most of those individual waste streams into products to sell back to market.

It’s [Eastern Creek] a master integrated asset able to handle all waste streams, with a focus on landfill diversion. It will be one of Sydney’s key infrastructure assets, which the market will rely on to meet state recycling targets going forward,” he says.

As Bingo continues to grow, Daniel says the company intends to maintain its leading position in the B&D sector while at the same time expanding its C&I business.

“We’re five years old in the C&I sector and a relatively small player in NSW and Victoria, so we really want to grow that business in both states, but also geographically around the east coast of Australia,” Daniel says.

“We’ve (the waste sector) been out of sight, out of mind for too long and now is the time for industry to change and improve.”

Next week’s instalment features an interview with Cleanaway CEO Vik Bansal. 

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Bingo Industries to acquire Dial A Dump Industries

Bingo Industries has announced it will acquire fully integrated NSW waste and recycling business Dial A Dump Industries for $577.5 million.

It comes as Bingo Industries released its full-year results (more to come on this). According to an ASX statement, consideration for the acquisition will comprise $377.5 million in cash and $200 million in Bingo shares to be issued to vendors of Dial A Dump Industries Group (DADI Group) after the acquisition is completed.

The acquisition will be funded by an underwritten 1 for 2.48 $425 million pro-rata accelerated non-renounceable entitlement offer and $200 million scrip consideration to DADI vendors, priced at $2.54 per new ordinary share.

DADI Group generated financial year 2018 revenue of $198.2 million and earnings before interest, tax, depreciation and amortisation of $51.6 million.

Ian Malouf, the largest vendor of DADI will join the Bingo board after the acquisition is completed with a shareholding of up to 12 per cent post completion of the entitlement offer and acquisition.

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The acquisition includes its post-collection assets, including Genesis Waste Facility at Eastern Creek, a recycling and landfill asset with approved capacity of up to two million tonnes per annum and remaining useful landfill life of about 15 years.

The ASX statement said DADI has strong future growth opportunities through exposure to favourable NSW infrastructure markets and structural shifts towards recycling.

It said there would be compelling future growth opportunities, including the opportunity to develop a Recycling Ecology Park in Eastern Creek aligned with Bingo’s strategy of further diversifying into putrescible, commercial and industrial and municipal solid waste and waste post collections.

The statement said it also provides economic benefits through volume growth and internalisation of 100 per cent of Bingo’s non-putrescible building and demolition and commercial and industrial waste, with significant landfill capacity for external customers and broader coverage of revenue from the excavation and demolition phases of the construction process.

CEO Daniel Tartak has committed to invest a further $72 million to take up 100 per cent of his entitlements, while Tony Tartak, the founder of Bingo and Mark Tartak have separately committed to invest a further $9 million each.

CEO Daniel Tartak said the DADI site at Eastern Creek provides Bingo with the opportunity to transform waste recovery and recycling in greater Sydney through the development of a Recycling Ecology Park.

“The Recycling Ecology Park, once completed, will considerably broaden our range of processed end products as we work towards building a circular economy. By seeking alternative waste solutions, we can enhance recovery rates, consistent with Bingo’s strategic intent of diverting waste from landfill through recycling led solutions,” he said.

Dial A Dump founder Ian Malouf said the company has a lot of respect for Bingo and how they have built their business.

“Bringing together these two Australian companies makes complete sense. I fully support Daniel Tartak the CEO and Bingo’s growth strategy, particularly the vision of a master site at Eastern Creek that can process all waste types. With the infrastructure program in NSW and the new waste levy in Queensland, the market is only going to grow and I’m excited to be on board for the journey,” he said.

Bingo expects to deliver run-rate synergies of $15 million per annum to be realised over two years, from internalisation of waste volumes, operational efficiencies and rationalisation of overheads.

The acquisition remains subject to customary closing conditions including Australian Competition and Consumer Commission informal merger clearance.

Cleanaway agrees to acquire Tox Free Solutions

Cleanaway has agreed to acquire Tox Free Solutions (Toxfree) for about $671 million.

Cleanaway is offering $3.425 for each Toxfree share and the integration of the business is expected to deliver about $35 million in annual synergies over a two-year period. Toxfree shareholders will be able to receive a 5c a share interim dividend.

To fund the acquisition, Cleanaway will launch a fully underwritten $590 million 1 for 3.65 pro rate accelerated entitlement offer and draw down debt from a new multi-tranche facility.

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In a statement, Toxfree board of directors reportedly unanimously recommended that shareholders vote in favour of the scheme, and will vote the shares they own or control in favour of it, in the absence of a superior proposal.

Cleanaway Chief Executive Officer Vic Bansal said acquiring Toxfree will consolidate Cleanaway’s position as Australia’s leading waste management company, balancing and re-weighing its integrated waste model.

“The acquisition will accelerate the implementation of our Footprint 2025 strategy by adding prized infrastructure assets across the country, as well as contributing an exciting new business in the form of a leading, vertically-integrated provider of healthcare waste management products and services, including collection, transport and treatment of sharps, clinical and related waste,” he said.

The scheme consideration values Toxfree’s fully diluted equity at approximately $671 million. The transaction will be subject to standard regulatory conditions, including Australian Competition and Consumer Commission approval. A scheme booklet, independent expert’s report, reasons for the directors’ recommendation and details of the scheme will be prepared and provided for review to the Australian Securities and Investments Commission for review, expected in February 2018.

Toxfree expects to update the market on an indicative timetable in January 2018.

 

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