Clairvest Group, Inc. Winner of the 2024 PE Global Dealmaker Award for Arrowhead Environmental Partners
Arrowhead Environmental Partners (Arrowhead) was founded in 2018 to address diminishing solid waste disposal capacity, particularly in the northeast US markets, and the increasing cost of disposal, which is rising faster than inflation. Arrowhead provides non-hazardous solid waste disposal services to disposal-constrained markets in the eastern US by using intermodal containers and waste-by-rail infrastructure. In light of the difficulties permitting new landfills and waste to energy facilities, as well as expanding existing landfills, Arrowhead’s unique assets and value proposition are well positioned.
“Ninety-eight percent of our waste comes to our landfill by rail,” says Arrowhead Co-Founder and CEO Bill Gay. “Ten years ago it would have been crazy to ship waste from Massachusetts all the way to our facility in Alabama, but that’s exactly what we’re doing. Not only does that expand landfill capacity in a part of the country that desperately needs it, transporting waste by train — over long distances — produces far fewer greenhouse gas emissions than running tractor trailers on local roads and highways. It’s a win-win.”
In 2019, Gay met up with an old contact named Michael Castellarin at a conference in Chicago. A Managing Director at Clairvest Group, Inc., a leading private equity management firm with over C$4 billion of capital under management, Castellarin has been investing in waste management businesses for over 17 years.
“When I heard that Bill and Jim (Arrowhead Co-Founder and COO, Jim Francesco) were building a cost-effective and practical, yet novel, solution for what’s become a growing problem particularly in the northeastern US, I was immediately intrigued,” recalls Castellarin. “It’s not every day that you come across experienced entrepreneurs like Bill and Jim who have a unique yet actionable business model for addressing a significant market need.” Clairvest went on to invest $10 million in Arrowhead in June 2020 at a time when the company was beginning to ramp up customer shipments of non-hazardous solid waste by rail.
Having already made six platform investments in the environmental services industry, Clairvest was a terrific fit for Gay and Francesco. “They had the experience, expertise, and credibility we were looking for,” says Francesco. “Their backing sent a strong signal to the industry that we were focused on building a serious business.”
Over the next three years, Clairvest regularly provided ideas, insight, and support to the Arrowhead team. “They gave us the macroeconomic perspective we needed, always made sure that we were on the right trajectory, and helped us secure a credit facility with one of their core relationship banks,” recalls Gay. “They were there when we needed them, but gave us the freedom to run the business the way we wanted to. And, whenever we encountered a challenge along the way, they were always ready to help us find a solution.”
Impressively, Arrowhead’s revenue organically grew 15 fold in the three years following Clairvest’s investment, fueled in large part by hitting a number of important milestones. These included signing a customer contract with Waste Connections, one of the leading publicly traded non-hazardous solid waste management companies in North America, renewing a vital 10-year state permit for the Arrowhead landfill in Alabama, and securing a number of long-term rail transportation and lease agreements with Norfolk Southern and short line rail providers.
With its revenue growing, its new 10-year landfill permit secured, and its relationship with Waste Connections deepening, by 2023 the conditions were right to sell the business. “While the timing was right, we had built what felt like a close-knit family business,” says Francesco. “As such, we wanted to make sure our people would be taken care of and be able to stay on with any new owner.”
Ultimately, Waste Connections fit all of the criteria and acquired the business in 2023. “Clairvest played an important role in orchestrating the sale,” says Francesco. “They had the right experience and expertise to help us negotiate a really successful exit. Bill, Robert, and I are very pleased with the outcome,” he notes, referring to fellow co-founder and Arrowhead’s CFO, Robert Berns.
For Clairvest, the relationship with Gay, Francesco, and Berns was tremendously rewarding and financially successful. “We worked very well together, blending complementary skills and experience to help build a truly strategic industry player that generated a strong financial return for all equity holders,” says Castellarin. “We also built lifelong relationships and friendships that will extend beyond this partnership. Frankly that’s the cherry on top.” The sale of Arrowhead to Waste Connections generated an impressive 12.2x multiple of invested capital and an internal rate of return of 123 percent, while also earning the firm the PE Global Dealmaker Award.
“It was a fabulous outcome,” says Castellarin. “We were very happy to deliver great returns to our LPs and to see Bill, Jim, and Robert, who each had significant equity positions in the business, be well rewarded for their ingenuity, leadership, and tenacity.”
