Even in the worst of times, people still need their garbage collected and a supply of water. That is partly why M&A activity targeting North America’s water and waste management companies are at multi-year highs.

In the solid waste industry, 67 transactions totaling USD 2.8bn were inked in the year to date, making it the second busiest this century behind only last year’s 81 deals, according to Mergermarket.

In the water management sector, 43 deals worth a disclosed USD 8.7bn were announced this year, making it the highest volume since 2001. The biggest was Evoqua Water Technologies’ USD 7bn acquisition by Xylem, announced in January. Another sign of interest came in October when Danaher [NYSE:DHR] spun off Veralto, which tests and treats municipal wastewater. Its USD 23.3bn spinoff is not included in the data because Veralto’s technology also tracks food and medicine supply chains, not just water.

Water world

In the US, roughly 85% of the water management industry is in local municipality or government hands. That leaves just 15% in private hands of companies such as American Water Works [NYSE:AWK] in New Jersey, Aqua America in Pennsylvania, and SJW Group [NYSE:SJW] in California.

American Water, the US’s largest regulated water utility, serves 14 million people in 14 states – a far cry from Europe’s much larger counterparts, such as Veolia Environnement [EPA:VIE] and Thames Water.

American Water sees great potential for industry consolidation, and is targeting 5,000 to 50,000 customers per acquisition. It is also looking at wastewater systems, a subsector where all but 2% is in government hands in the US.  Last October, it paid USD 232m for Butler Area Sewer Authority.

Small water companies are looking at buying too. One is Denver-based Pure Cycle [NASDAQ:PCYO], which sees opportunities to consolidate the Denver metropolitan area, where 4.5m inhabitants are served by 70 different jurisdictions, says president and CEO Mark Harding. Many municipalities operate small, independent water systems that serve less than 3,000 customers and some are happy to turn over the keys to private companies given they lack capital to update infrastructure and stay in compliance, Harding says. The purchase price typically ranges from USD 2,000 to USD 3,000 per connection, he says.

Both climate and regulatory factors are putting intense pressure on smaller water systems, says Harding. The first major pain point is variability of water supply, especially in the drought-afflicted western US. Another is the onerous regulations on water quality from the Environmental Protection Agency, such as the need to filter out PFAS chemicals or remediate lead water lines in older cities.

One area that has seen more M&A is in water treatment and testing technologies and other support systems used by water utilities, says Harding. The deals for Evoqua and Veralto are prime examples of that.

Trash to treasure

In the US, the garbage disposal industry is dominated by just a handful of players – Waste Management [NYSE:WM], Republic Services [NYSE:RSG], Clean Harbors [NYSE:CLH], Stericycle [NASDAQ:SRCL] and Casella Waste Systems [NASDAQ:CWST]. Yet room for consolidation among the smaller players still exist and the pace of M&A should increase in 2024, industry players told this news service at a recent waste industry conference.

Private equity firms, such as Ironwood Capital, and sponsor-backed companies, such as Milestone Environmental Services, will be big drivers of that.

Companies that convert trash into a new resource, such as hydrogen or electricity, will also drive dealmaking. Mt Diablo Resource Recovery is one looking at acquisitions there.

Fortunes can be made from waste. Or, as the old English saying goes, ‘Where there’s muck there’s brass.’

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