MSCP acquires Apex, betting on environmental services

'There is a burgeoning industry around the auditing of ESG data, and that's an area where the company is strong,' Morgan Stanley Capital Partners' Eric Kanter said.

Growth characteristics, significant tailwinds and the ability to weather a tight macro-economic environment are some of the pillars pushing New York-based PE firm Morgan Stanley Capital Partners (MSCP) to invest in the environmental and infrastructure consulting sector.

The PE firm will announce later this morning that it is acquiring Apex Companies, a Rockville, Maryland-based provider of end-to-end environmental and infrastructure consulting and engineering services from Sentinel Capital Partners, a New York-based PE firm.

PE Hub caught up with Eric Kanter, managing partner and head of industrials at MSCP, as well as Jill Wight, managing director, and Gian Turco, vice president, for an exclusive interview about the deal.

Eric Kanter, Morgan Stanley Capital Partners

“This investment offers a uniquely attractive risk-adjusted return,” Kanter said. “Environmental services, and Apex in particular, is incredibly recession-resilient with several break-away growth opportunities.”

Apex serves clients at the federal, state and municipal level and a host of private sector clients within retail, industrial, real estate, technology, energy and financial services markets. This deal comes at a time when the country is upgrading its battered infrastructure.

Among other opportunities, Turco said Apex works around municipal water infrastructure markets, which are regulatorily driven in nature. He said municipalities are mandated to provide safe drinking water or efficient wastewater systems, stormwater management, and other services.

Some of the opportunities lie in the work that Apex does to help companies provide safe environments for workers through its health and safety division, Turco said.

He also described the environmental and infrastructure consultancy and engineering services as highly fragmented: “M&A will be a core piece of our strategy in providing a good and skilled home for many of these smaller businesses that gives them greater opportunity and greater access to technical resources.”

Federal funding from recently passed legislation such as the Infrastructure Investment and Jobs Act will also help provide significant tailwinds for the sector, the MSCP vice president said.

“There is a tremendous wave of funding flowing down from the federal government that will result in the broader upgrade and improvement of our infrastructure over the course of the next five to 10 years or even more. We think that Apex is currently squarely positioned to benefit from that by virtue of its existing capabilities in water infrastructure and water resources,” Turco said.

The growing ESG consulting space is one area that Apex can capitalize on, according to Kanter, who added that the company has a unique offering around auditing of the data that companies publish. “There is a burgeoning industry around the auditing of ESG data, and that’s an area where the company is strong, and we think there is significant opportunity going forward.”

Even as the economy is tightening, Kanter said the sector has shown signs of resilience in difficult periods, such as the covid pandemic and past financial crises.

He said Apex has ongoing relationships with hundreds of clients, and in most cases the projects run for several years because of regulation and their recurring nature. “There is such an acute need to make these repairs and upgrades,” he said about the broken infrastructure.

The Apex deal represents the second investment in environmental services for MSCP following the acquisition of Alliance Technical Group in 2021. MSCP said this investment is in line with Morgan Stanley’s broader commitment to ESG.

Among its strengths, Wight said MSCP’s team has deep knowledge and expertise in the sector and its in-house set of toolkits can help Apex grow. “We have just got a lot of muscle memory to pull out these values that create operating leverage,” she said, adding that, “a combination of the toolkits and the resources we can bring from the Morgan Stanley network is really meaningfully differentiated.”