When private equity fund The Sterling Group acquired Evergreen, staff at the PET collector were nervous, including Greg Johnson.
But far from gutting the team, the investors kept the staff members and their collective expertise intact. It’s a pattern Evergreen has followed when acquiring other PET collectors, Johnson said.
“One of the keys to all of our acquisitions is the expertise that comes with them,” he said. “It is certainly part of the value of each of the facilities we have acquired.”
Johnson, who is now general manager of resin and recycling for Evergreen, was speaking on the “Private Equity Impacts” panel at the Plastics Recycling Conference, held March 7-9 in National Harbor, Md. , near Washington, D.C.
Joining him in the session, which drew nearly 200 spectators, were Alexandra Tennant, principal analyst for PET/RPET at Wood Mackenzie, and John Griffin, principal at The Sterling Group. The session moderator was Maite Quinn-Richards, managing director of Closed Loop Partners and co-head of the firm’s private equity fund.
Finding PCR buyers is not the problem
Investment money has flowed into the plastics recycling industry as demand from consumer product brand owners increases, speakers noted. At the same time, steady reductions in overseas scrap markets over the past several years have laid bare the need for additional processing capacity in North America.
Tennant illustrated the gap between PET waste supply, production capacity and demand now and in the years to come. After analyzing the recycled content targets of a dozen large companies, she found that companies will need 240% more RPET between 2020 and 2025, or more than 2.4 billion pounds, to meet their targets. . This does not take into account the additional demand that will be stimulated by extended producer responsibility (EPR) and minimum recycled content regulations coming online around the world, she said.
A Wood Mackenzie 2021 forecast revealed that consumer demand for RPET is expected to increase by 270% between 2018 and 2025. At the production level of RPET in 2025, food contact packaging would contain an average of 22% recycled content, she said.
Capacity is nowhere near enough to meet those goals, Tennant said. She also noted the volatility in PET bale prices recently. According to RecyclingMarkets.net, the average price in the United States has risen from less than 27 cents per pound to more than 33 cents, a 24% increase, over the past month.
“Overall, the partnership with Sterling and our expertise, coupled with current market demand, has really boosted our expansion in the market.” -Greg Johnson of Evergreen
But rising bale prices aren’t translating into increased offerings from door-to-door collection programs, Tennant noted, and those higher prices increase the costs of investing in plastics recycling.
“I think it’s important to recognize this kind of cost-carrying requirement and the support that investment needs from any type of corporate finance partner to develop the necessary infrastructure on the side of demand,” she said.
Investments Fuel Rapid Rise of PET Collector
Founded in 1998, Clyde, Ohio-based Evergreen was created as a division of Polychem Corp. (now called Greenbridge), to which it supplied PCR for use in plastic strapping. The family business grew over the years to eventually occupy 240,000 square feet and employ 140 people.
The Sterling Group, a Houston-based private equity firm, acquired Polychem and Evergreen in 2019. The Sterling Group provided knowledge, support, research and other capabilities to drive Evergreen’s growth, explained Johnson.
“Since then, we have radically changed the landscape of our business and become a market leader,” he said.
A year ago, Evergreen launched a $22 million expansion project at its recycling plant in Clyde, Ohio. The project is expected to increase the capacity of this facility to produce transparent food-grade RPET from 40 million to 80 million pounds per year. Later in 2021, the American Beverage Association (ABA), Ohio Beverage Association, and Closed Loop Partners announced their combined $5 million investment in the expansion.
Johnson said the organic growth plan includes upgrading pellet lines and installing new ones, strengthening the front-end sorting system with new sorting robots and installing new optical sorters for bottles and flakes.
Since the start of this project, Evergreen has also purchased three PET recycling plants. The company purchased CarbonLite’s former factory in Riverside, California in June 2021 after CarbonLite filed for bankruptcy earlier in the year. In November 2021, Evergreen acquired UltrePET factories in Albany, NY and Amherst, Nova Scotia. The acquisitions give the company a coast-to-coast footprint in and near bottle deposit and non-bottle deposit states.
With a total capacity of 147 million pounds of food grade RPET per year, Evergreen is now one of the largest producers of RPET on the continent.
“Ultimately, we wanted to be a full-service provider for our customers across the network, not just a regional provider,” Johnson said.
In 2021, Evergreen invested in sorting robots supplied by AMP Robotics. Units were installed in Clyde in April 2021 and Riverside in August 2021. Most recently, the company announced that it would be installing additional sorting robots at the recently acquired Albany facility – with installation planned for mid -2022 – giving Evergreen 15 robots in total.
The robots are only a small part of the total $200 million Evergreen has invested in the company over the past year. When the company’s Clyde expansion project is completed this year, Evergreen will have a total RPET production capacity of 217 million pounds per year, according to a press release.
“Overall, the partnership with Sterling and our expertise, coupled with the current market demand, has really driven our market expansion,” Johnson said from the stage.
Tangent, backed by Sterling, finds growth opportunities
Sterling Group acquired Tangent Technologies, a manufacturer of recycled HDPE wood products headquartered in Aurora, Illinois, in 2019. Overall, Tangent uses approximately 78 million pounds of recycled resin per year, including including post-consumer and post-industrial materials.
Since its acquisition by The Sterling Group, Tangent has swallowed up a number of other companies, including Home & Leisure and Vinyl Tech in 2019 and Bedford Technology in 2020.
“Tangent’s story has been one of expanding through partnerships and acquiring other businesses, really driven by capabilities, and then investing in them,” said Griffin of Sterling Group, who also worked for Tangent.
More recently, Tangent acquired 1.2 million square feet in Montgomery, Illinois vacated by Caterpillar and redeveloped it to serve as the company’s manufacturing center of excellence.
Since its acquisition by The Sterling Group, Tangent has spent or planned more than $60 million in capital investments in Tangent and its companies from 2020 through 2022, Griffin said. Each of those years includes more capital spending than Tangent spent from 2003 to 2017, combined, he said.
“Each of the three years of capital programs under our oversight has been the largest in company history,” he said.
“Tangent’s story has been one of expanding through partnerships and acquiring other businesses, really driven by capability, and then investing in it.” – John Griffin of the Sterling Band
Griffin said when Sterling acquires a business, his goal is to accelerate the great work the company is already doing and reduce risk. When asked how waste pickers can ensure that private equity firms don’t step in and cut expenses to generate quick returns on their investments, Griffin noted that it’s “very hard to grow a business by simply cutting costs”.
“Most investors have to sell the business to someone at some point, and that next investor or buyer wants to have a sustainable, growing, healthy business,” he noted. “So at least in our experience and certainly the way we’ve partnered with teams, that hasn’t been the goal or the way some kind of feedback is generated.”
“Private equity seeks long-term, sustainable growth,” Johnson said. “Yeah, they want to grow fast, and we’re working very fast – I think my team would certainly tell you that the pace we’re working now compared to three years ago is much faster, but I think everyone It’s not viable to just step in and cut costs. That doesn’t make a marketable business. And that’s not what it’s all about, at least not the points from a private equity perspective that I’ve seen.
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