by Maureen Flanagan
Solid waste disposal may not strike everyone as a glamorous business, but for Gary Goldberg, president of Specialty Transportation Services, Inc. (STS), it is the stuff of dreams. For some 15 years, Goldberg developed the solid waste hauling operations of Jack Gray Transportation (JGT), a national, Indiana-based trucking company, expanding the business from one contract in Long Island, N.Y., to a growing network of terminals with revenues of more than $30 million. In late January 1998, Goldberg became president and part owner of the business he had nurtured through the years in a $30.2 million acquisition. He made the purchase with financing by American Capital Strategies (NASDAQ -- ACAS), whose commitment to funding the deal saved it from demise just before the purchase agreement was to expire. Aasche Transportation Services, Inc. (NASDAQ --ASHE), an interstate trucking company, participated as an equity partner.
For Goldberg, the purchase represents the culmination of years of dreaming, hard work, and a few "fateful events" that kept the business prospering. It all started in 1971 when JGT owner Jack Gray hired him as an accounting consultant. In 1977, Goldberg was promoted to Executive Vice President of the company which had expanded from its original transporting of sand and gravel into stevedoring and hauling scrap metal. In 1984, Browning-Ferris Industries (BFI), one of the country's biggest waste haulers, called about a municipal waste hauling opportunity on Long Island. Goldberg notes that this was three years before the famous New York trash barge incident, when the garbage barge Morgo left Long Island on a 6,000 mile journey before finding a place to dump its 3,100 tons of waste. In 1984, the country was not yet in the throes of a solid waste crisis, but disposal was an increasing problem. When JGT won the Long Island contract, Goldberg was at the helm of a new direction at the company - and on the leading edge of a new opportunity for the trucking industry.
Today, municipal solid waste (MSW) hauling companies provide a critical service in the waste management system of U.S. cities and municipalities. Gone are the days when waste disposal meant a trip to the town dump. Because of environmental concerns and public pressure, many regional landfills near metropolitan areas have been closed. This has created a need for hauling municipal waste from transfer stations to landfills which are often located far from the city.
Added to this, more stringent federal and state regulations have put pressure on MSW operators. This has led to a consolidation in the industry, as small, independent waste haulers have been driven out of the market through closure or acquisition by larger companies such as BFI, Waste Management Corporation (WMX), Republic, USA Waste, and Allied. And, perhaps most importantly to operators like Goldberg, the major MSW companies are focusing their efforts on the two most profitable segments of the business -- waste collection and landfill management - as they begin to hire trucking specialists for the transfer segment of the business (hauling the waste from the transfer site to the landfill.)
It was in this environment that Goldberg won his second waste hauling contract in 1988. This one, in Portland, Ore., was trickier to put in place, Goldberg says, not only because of increased public attention and environmental concerns, but because the 153-mile truck route went through the scenic Columbia River Gorge. After negotiations and a substantial amount in public relations and legal fees, he won the 20-year contract, and thus began the company's largest and longest running contract for transporting solid waste. In retrospect, the business in Portland really paid off, Goldberg says, giving the company national visibility and a reputation as an environmentally sound operator handling solid waste on each coast.
From 1990 to 1996, Goldberg's waste hauling business grew rapidly, with new contracts in Arizona, South Carolina, North Carolina, Tennessee, and California. The company's seven waste terminals were located in areas that were projected to grow in population and continue to produce a substantial amount of waste. By the end of 1997, the company was expanding into six new transfer points, with new terminals set to open in several locations. It was, in fact, the largest and perhaps the only solid waste hauling operator who could cover locations on a national basis - a real plus for future growth as large disposal companies look for nationwide hauling subcontractors.
Over the years, the company has also maintained many satisfied customers. In the Portland Metropolitan Sanitary District, initial concern by public and environmental groups entirely dissipated over the eight years of "exemplary" service, according to Bruce Warner, director of Regional Environmental Management. Judge Laura Pryor, who was responsible for issuing many of the permits to the company for its Oregon operations, also noted that residents had initially favored rail transport to the prospect of trucks hauling waste through their small towns. But, she said that there hadn't been one problem involving the trucks, the containers, or the operators in any of the six counties involved. Other customers gave equally favorable marks and indicated that they intended to renew their contracts.
In putting together the acquisition, Goldberg was joined by Aasche Transportation Services as an equity partner. An Illinois-based company specializing in temperature controlled transport, Aasche was searching for diversification and found STS's waste hauling business a good fit. (Goldberg served on Aasche's Board of Directors.) The deal was structured so that the new company would become a subsidiary of Aasche, but retain its separate identity. Mellon Bank provided the senior term and revolving credit for the company, joining ACAS, who committed to finance the debt side of the purchase.
Shortly before the purchase agreement expired, however, most of the equity financing was still not raised. Although this put the entire transaction in jeopardy, ACAS was committed to the deal and determined to ensure that it closed. To do this, ACAS was prepared to substantially enlarge its role from providing a piece of the subdebt to funding the entire transaction, according to Joseph Bute, principal of American Capital. As the deal was refocused, ACAS's expanded commitment led everyone else to back the investment. "It was a critical juncture in the negotiations and ACAS's commitment enabled the company to complete its equity funding efforts and close the transaction," Bute says. In closing the deal, ACAS purchased from STS $8,000,000 in senior and junior subordinated notes with warrants and $500,000 in common stock (and with a commitment to provide $4.2 million of equity if it had been needed.) The transaction marked ACAS's first financing in the solid waste industry and brought its investments since its initial public offering in August 1997 to more than $33 million.
As president of STS, Goldberg and his management team have already capitalized on the industry's tremendous potential. In the first two months of 1998, STS gained five new contracts and an additional $5 to $10 million in revenue. The company more than doubled the number of its terminals to 14 locations nationwide and is anticipating revenues of $45 to $50 by the end of its first full year, up from $34 million at the time of the acquisition.
Goldberg is also planning to develop the industrial hauling side of the business. Five JGT terminal managers who handled garbage and industrial waste operations are now working for STS, so both the new terminals and experienced employees are in place. His vision for STS encompasses hauling a range of dry bulk commodities, from garbage and contaminated soils to scrap metals and recyclables such as glass and plastics, cardboard and paper, and green waste. With the financial backing of ACAS, added to an experienced staff, nationwide network of terminals and fleet of new trucks and equipment, STS is in a good position to expand its customer base and to serve national accounts throughout the United States.
A hands-on president, Goldberg makes the rounds of his company's terminals, "pollinating his workers with ideas" so they, too, can go out and develop the business. When he speaks to the truck drivers and office personnel, he shares with them a bit of his own experience. "If you really work hard doing what you love to do, dreams still come true in this country of ours," he tells them. Now, as president of STS, Goldberg has had one dream come true and is ready to realize a new dream of providing comprehensive, safe, and cost-effective transportation services to the waste, scrap, and recycling industries. With a clear vision for the future, Goldberg considers himself a fortunate man. "Even in the garbage hauling business, dreams do come true."
