Here is an extraordinary story; at the least it's one for you to ponder and track.
GlyEco (GLYE.OB) is well underway with its roll-up strategy acquiring profitable companies. Since February of this year they have acquired seven (7) companies (see Bloomberg article re the last acquisition). While the company is relatively new and undiscovered, management carried out 3 years of legwork in preparation for their official launch. They had the idea, developed their technology, researched the market, and developed the key business relationships and hit the ground running. (See the seven and the hyperlinks to the SEC 8-K docs below.)
There are Risks in Rollups
In the book BILLION DOLLAR LESSONS authors Paul Carrol and Chunka Mui postulate that, "about two-thirds of rollups fail to create value for investors"; and my several decades of investing experience suggest the same. The 'sudden' increase and complexity in dealing with the multiplication of 'moving parts' while orchestrating the benefits of centralization and integration of multiple and growing entities can be a formidable task. Questions re pricing power, the cost of capital and disparate regulator bodies to satisfy also multiplies to complicate the undertaking. In many cases much of senior management's time is spent in putting out fires and coordinating disparate activities; rollups are definitely not a sure thing.
The Business Model
GlyEco is devoting its energies to acquiring the near limitless quantities of the hazardous waste glycol ("feedstock") reclaimed from sources such as anti-freeze from the automotive industry, heating and air-conditioning systems, polyester fiber and plastic bottle manufacturing, aircraft de-icing, and medical sterilization. Then they process the feedstock (that is acquired at a cost of near zero), with their patented technology that returns it to its original 'virgin' quality and then sell it back into the market. Demand for glycol continues to exceed supply with exponential growth predicted.
Globally, over 5 billion gallons ($25 billion) of glycol is annually consumed in the sectors listed above, where North America currently consumes an estimated 1.1 billion gallons each year. The opportunity here is that a large amount of waste glycol is 'created' in the several uses of the petro based chemical; in North America about 700 million gallons of the waste glycol 'feedstock' are created while the rest of the world likely generates another billion gallons or more. Fundamental to the GLYE thesis is that the waste glycol 'feedstock' is acquired at an extremely low price; in some cases, as in Europe, 'you' can be paid to take it away. Moreover, what makes this deal resonate is that, after processing, the recycled glycol can be sold for at least as much as refinery-produced glycol-historically that's about one dollar more per gallon than gasoline. Hence the "too good to be true" consideration.
The average sale price of ethylene glycol in 2011 was approximately $5.69 per gallon, with a seven-year average sales price of about $4.57 per gallon.
GlyEco plans to increase processing capability in its New Jersey plant to 10 million gallons per year during the installation of its patent-pending GlyEco Technology™. Demand for high-quality recycled glycol product that meets ASTM standards far exceeds supply in every market segment.
Management Team Is Key
While most rollups don't fly, let's remember the story of one that did; $15.8 billion market-cap Waste Management (WM), and how it grew in seven years from $2 million in revenues to $14 billion through a series of acquisitions of smaller cartage / garbage / waste companies. The key is that GlyEco's acquisition strategy is being replicated and orchestrated by Waste Management's creator, John Lorenz. Certainly previous experience is not a guarantee of future success, however investing alongside Lorenz, GlyEco's CEO, who has 35-years of experience, coupled with a strong track record provides better leadership and knowhow than a person who has no experience at all.
GlyEco's management team is seasoned in the operational details of big-footprint commercial applications. The team is comprised of experts in solid waste management, mergers and acquisitions, chemical engineering, and glycol recycling.
The Technology
The patent-pending GlyEco recycling process is the only technology that can process and clean all five types of hazardous waste glycols to meet or exceed ASTM standards. Furthermore, the US Environmental Protection Agency [EPA] requires most federal agencies buy antifreeze with the highest recycled content level practical. Most agencies report a lack of supply to meet their demand.
Re Financial Risk
GlyEco has raised a total of $6.5 million to date. They have already closed on the first acquisition (Minnesota) and their 6 additional acquisitions are subject to further capital injections. Because of management's history of a major success on a very big stage I believe they will have minimal difficulties closing their current $5 million equity offering that will add additional dilution of 10 million shares. So fully diluted you're at 35 million shares. Importantly, this would put them into Type 1 glycol production and any future acquisitions could be made via cash flows.
New Targets in the Roll-Up Strategy
The company has further identified additional potential customers and developmental partners in North America, Europe, throughout Asia, Mexico, South America, India, and Australia.
More about Waste Glycol generated in the USA
Estimated gallons per year by industry
Automotive Antifreeze
202,000,000
Textile Purge Stream
193,300,000
Aircraft Deicing Fluid
35,000,000
Heat Transfer Fluids
234,000,000
Sterilization Processing
32,130,000
TOTAL
696,430,000
Source: Statistical Reconciliation GlyEco, Inc.
The glycol waste data I use is compiled and verified by several sources including the U.S. government, reporting from each of the five industries, as well as distributors and customers, e.g. Dow Chemical (the world's largest producer), MEGlobal and SABIC within each industry. ICIS Chemical News is arguably the most reliable source for allocation breakdowns of global glycol distributions as it is the world's largest petro chemical information provider.
Revenue & Earnings Projections
Management's revenue/earnings snapshot paints an eyebrow raising picture.
· year one EPS are projected at $0.40 a share
· projected 2012 revenue is $6 million
· projected 2013 revenue is $48 million
· projected 2014 revenue is $73 million
Going Forward
With the above-mentioned markedly successful Waste Management roll-up as a model, I believe that GlyEco management complete additional acquisitions along the lines of the seven recently announced deals. In my opinion, revenues and profits would expand exponentially as the acquired assets upgrade to the GlyEco technology and that news flow will drive share price.
More Detail on Key Management
Mr. John Lorenz is a founder, the CEO and Chairman of the Board (19.3% shareholder) of GlyEco (GLYE). Mr. Lorenz founded Environmental Waste of America, Inc. in 1986, where he served as President and CEO between 1986 and 1997 until its merger with Envirofil, Inc. This is the public company which, through a series of mergers and acquisitions, morphed into Waste Management, Inc. NYSE with a market cap of $ 15.8 billion. Waste Management currently offers environmental services to nearly 20 million customers. Together with its competitor Republic Services, Inc., the companies handle over 50% of the municipal solid waste disposal and recycling in the US.
The 7 deals by GLYE since February
7. June 7, 2012
GLYECO, Inc Files SEC form 8-K
On June 7, 2012, GlyEco, Inc., a Nevada corporation entered into a preliminary agreement with Antifreeze Recycling, Inc. located in Tea, South Dakota
6. May 31, 2012
GLYECO, INC. Files SEC form 8-K, Other Events
EDGAR Online - On May 31, 2012, GlyEco, Inc., a Nevada corporation, entered into a preliminary agreement with Renew Resources, LLC. of Rock Hill, SC.
5. May 23, 2012
GLYECO, INC. Files SEC form 8-K, Other Events
EDGAR Online - On May 23, 2012, GlyEco, Inc., a Nevada corporation, entered into a preliminary agreement with Enviro-Cool, a Georgia LLC.
4. April 16, 2012
GLYECO, INC. Files SEC form 8-K, Other Events
EDGAR Online - On April 11, 2012, GlyEco, Inc., a Nevada corporation, entered into a preliminary agreement with Evergreen Recycling Co., Inc., an Indiana corporation.
3. March 27, 2012
GLYECO, INC. Files SEC form 8-K, Other Events
EDGAR Online - On March 22, 2012, GlyEco, Inc., a Nevada corporation, entered into a preliminary agreement with MMT Technologies, Inc., a Florida corporation.
2. March 22, 2012
GLYECO, INC. Files SEC form 8-K, Other Events
EDGAR Online - On March 16, 2012, GlyEco, Inc., a Nevada corporation, entered into a preliminary agreement with Full Circle Manufacturing Group, Inc., a New Jersey corporation.
1. February 7, 2012
GlyEco Announces Acquisition of Glycol Recycler Recycool
Marketwire - On Tuesday 2/7/2012, GlyEco, Inc., a Nevada corporation, announced it has signed an asset purchase agreement to acquire certain assets of Recycool, Inc.
Disclosure: I am long GLYE.OB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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