EQT’s Juan Diego Vargas: Waste management delivers ‘remarkable stability’

Cashflow predictability, stability of the industry and new opportunities of turning waste into renewable energy are some of the factors driving EQT, a Stockholm, Sweden-headquartered PE firm, to invest in waste management, Juan Diego Vargas, partner at the firm’s infrastructure team told PE Hub.

Earlier in April, EQT portfolio company Covanta, a waste-to-energy provider, agreed to acquire Circon, a La Porte, Texas-based provider of environmental services, including waste management, from Kinderhook Industries.

The deal marked the eighth acquisition for Covanta, a Morristown, New Jersey-headquartered company, since coming under the ownership of EQT in 2021. EQT has offices in many parts of the world, including in New York, and invests actively in North America.

“We look for businesses where there is cashflow predictability and downside resilience,” said Vargas. “When you look at waste management and the volumes specifically from municipal solid waste or industrial waste for the past 10 to 15 years, you see remarkable stability regardless of economic activity in the broader US economy.”

There are numerous downsides to waste being disposed on landfills, including the fact that when waste decomposes in an uncontrolled manner, it leads to numerous environmental hazards, such as the emission of methane and carbon dioxide gases. Some companies are buying into the idea of repurposing waste.

“There is a sustainability drive across corporate America that is resulting in a more sustainable, effective pathway towards waste management,” said Vargas.

There are various ways to handle waste, such as generating renewable energy, recycling, repurposing it to a new material, compost organic waste and more.

Covanta manages about 21 million tons of waste per year from municipal customers and industrial customers. Most of the waste is used to produce renewable energy while the other portion is recycled or reused as green metals.

Just like Covanta, Circon has a component that produces renewables, such as alternative engineered fuels. “We think that the opportunity for renewable energy will be enormous in the United States,” he said.

Alternative engineered fuels, a sector that Vargus described as “rapidly growing,” can be a substitute for fossil fuels in industrial manufacturing or mining purposes, such as the production of cement where the emission of carbon dioxide is rife.

Circon also recycles and purifies industrial wastewater for other uses.

The Circon acquisition brings with it more than 600 new employees and 2,500 customers. The company has a customer base across more than 20 waste facilities in the Midwest, Southeast and Gulf Coast. Among its services, the company focuses on wastewater treatment, and non-hazardous and hazardous waste management.

“We are going to be a one-stop shop for all types of waste for all customers and provide them a path to sustainably dispose of their materials away from landfills at ‘waste-to-energy’ facilities to recycle and repurpose waste,” said Vargas. “As we do that, we are helping our customers satisfy their long-term sustainability goals.”

The Circon acquisition gives Covanta the national scale that EQT is seeking.

“The transaction doubles our industrial wastewater footprint, so whatever Covanta has it’s now worth 2x. That’s helpful because it gives us scale in certain areas and it also allows us to go to nationwide customers and say now we have twice the footprint and we can service you in different areas,” added Vargas.

Other acquisitions that Covanta has completed include Globalcycle, an industrial commercial wastewater treatment and recycling plant and Global Remediation Services, an environmental service business offering services such as logistics and disposal, emergency response, marine services and solar field development. Both companies are based in Massachusetts.

On rapid acquisitions that Covanta has completed, Vargas said: “They were focused on expansion into a geography that we did not have or an acquisition of a sustainable disposal avenue that we did not have.”

To continue scaling Covanta, EQT is looking at various organic means, including cross-selling services to existing customers. “There are a lot of customers to whom we are providing wastewater treatment services, but we are not taking their volumes and flowing their volumes through our waste-to-energy facilities.”

Covanta will also continue with the M&A component, said Vargas, “although we will be much more opportunistic around what pieces we add to the business.”

EQT is among PE firms picking up investments in the renewable energy space in the US. In late December, the firm acquired Madison Energy Investments, a Virginia-based owner and operator of distributed solar and energy storage projects, from Stonepeak Partners.

Among its strengths, EQT has an army of nearly 600 former executives in its network that the firm can tap when looking at an acquisition or during due diligence. These former executives can also be placed on boards of portfolio companies, including Covanta, Vargas said.