South Korean medical waste management companies Arim Environment and Changkwang have been put up for sale amid an upward trend in valuations of waste management companies in the domestic mergers and acquisitions (M&A) market.
Arim Environment and Changkwang have hired Hanul as their deal manager to handle the sale process and have sent teaser letters to potential buyers of a 100% stake owned by chief executive Kim Jin-hee and related parties. The seller is reportedly seeking a relatively high valuation for the companies.
“Market insiders are paying attention to privately-held Arim Environment and Changkwang,” said an industry source. “Major potential buyers have received teaser letters and started studying the targets.”
Founded in 1996, Changkwang is a medical waste management company located in Cheonan, Chungcheong Province. Its earnings before interest, tax, depreciation and amortization (EBITDA) were 9.7 billion won ($8.6 million) last year, up more than twofold since 2016. Arim Environment, which was established in 2000 in Goryeong, Gyeongsang Province, recorded EBITDA of 7.9 billion won in 2019, up sharply from 3.6 billion won over the same period.
Market insiders said the waste management business is less cyclical than other sectors and has a high entry barrier, which contributes to the generation of stable profits. Firms have to obtain approval from the government to run waste incineration facilities. There are currently 13 designated medical waste incineration facilities in South Korea and the cost of waste disposal has jumped due to stricter government regulations.
The Covid-19 outbreak also has contributed to increased domestic waste, making management firms more attractive takeover targets. Koentec, ESG Group and EMC Holdings were all sold for high prices earlier this year.
Privately-owned medical waste management firms are also joining the sale spree.
DDS was sold to Eugene Private Equity and Korea Development Bank in June. Based on the enterprise value to EBITDA multiple of 14 times to 20 times that applied to waste management companies sold earlier this year, Arim Environment and Changkwang are likely to be sold for approximately 250 billion won. (Reporting by Se-hun Jo)