Recently I had the opportunity to interview paper recycling industry veteran Steve Ragiel, ceo, Greenstar North America, a Houston-headquartered business established last October. It is one of this country’s largest recyclers, handling more than 1 million tons per year. Ireland-based NTR plc, an international developer and operator in renewable energy and sustainable waste management, own it. It is making waves in the U.S. Don’t look for it to stop anytime soon.

OBM: How did you get involved with Greenstar North America? What attracted you to this organization?

Steve Ragiel (SR): I had worked in the paper recycling industry in Europe from 1992 to 1997. I ran operations in about 17 countries and a couple of the fellows I worked with in the U.K. ended up starting a new company in Ireland called Greenstar. So I reconnected with them when I left Waste Management/Recycle America [in 2005]. They asked me to come over to help them with their recycling business in Ireland and the U.K. I did that for about a year and a half. As part of that process, NTR, the parent of Greenstar, mentioned that it might like to build a recycling business on the Greenstar model in the U.S. It asked me to take a look at it. We did and decided it looked interesting.

OBM: You have purchased a number of paper recycling companies recently (see sidebar for details). How did you go about evaluating whether or not these companies were worth buying? What’s your strategy now that you own them?

SR: The evaluation really starts with the people. Quite a few companies have approached us. The first thing we look at is whether the business culture fits well with the way Greenstar likes to do things. The key is the people side, whether the people in the businesses are willing to stay on and be partners with Greenstar for a considerable time.

After that we ask if these markets are located where there’s an interesting export element to the recycling side of the business. Finally we want to know where the business sits with regards to the rollout of single stream.

OBM: What’s the business culture at Greenstar?

SR: Our business culture revolves around being entrepreneurial, continuing to build a world class team, and looking at ways to provide solutions for our customers. A lot of these regional recycling companies that we’ve been speaking to and partnering with think this way. As one example, they see single stream as a way to provide their key hauling company, commercial and municipal customers with a service that’s valuable to them in terms of reducing collection costs or increasing the recovery of recyclables from disposal. So one of the key parts of the culture is to be entrepreneurial.

Also, we like to look at how you manage the business. Are we going to manage the business based on what has happened in the past or what is coming up in the future?

OBM: What’s your perspective on single stream recycling?

SR: There are two types. Residential has been rolling out across the U.S. quite rapidly over the last couple of years. And now you see a second wave of commercial single stream, where customers are able to mix in some office or mixed paper or bottles and cans with some of the commercial recycling that they’ve been doing in the past. This increases their recovery rate and creates some positive economics on the collection side of the business as well.

OBM: In doing my homework for this interview, I had a conversation with a paper recycling executive who believes that you seem to be replicating the Recycle America model, giving equity to companies that you purchased. He believes this model is broken because it leads to decision making problems. What’s your response to these comments?

SR: I like the business model from the point of view of long-term alignment and maintaining local relationships. At the end of the day, this business is based on relationships. We think the business model has very strong merit. Our prospective partners in the future and the ones we’ve already connected with are very favorable towards this type of approach. We’ve found decision making to be very rapid and well-aligned in our new partnerships.

One thing that is different about Greenstar is that we’re not in the landfill business, we’re not in the waste collection business, and we’re not a paper mill business. Our core business is recycling and that allows us to make decisions based on our customers’ recycling needs. That’s a subtle difference but it does help with the speed of decision making.

OBM: Will Greenstar be a national organization or will you build more within specific regions?

SR: Our plan is to continue to partner with entrepreneurial, well-managed regional recycling businesses while at the same time looking for opportunities for organic growth. When municipal facilities are put out to bid for management on the recycling side, we will take a look at participating in those bids. So eventually you will see a national footprint for Greenstar. It may take four, five, six years, but we would expect to eventually get to that. In the meantime, we are going to focus in on certain regions where we’ve started our partnership activities.

OBM: A number of people have told me that the amount of money you’ve paid for paper recycling plants is above the norm. What do you see in these operations that others might not see?

SR: We’re certainly not in a position to talk about specific purchase prices. The prices that have been paid for these partnership positions are well to the norm of acquisition activity in many businesses. We see opportunities to bring in recycling technology from Europe and increase the productivity in many of these businesses while at the same time rolling out additional residential single stream and the second wave of commercial single stream.

OBM: Are you using hedging tools in your business?

SR: When you’re in an up market it’s probably the best time to be thinking about making sure you’re maintaining your margins and profit levels. We have a number of different ongoing activities that revolve around hedging discussions, one of which is called upgrading. Here we seek to take a number of the commodities we’re bringing in through single stream and upgrade them.

Greenstar has a very strong balance sheet. So we’re able to access commodity hedges as and when our inbound customers need them.

OBM: Commodity prices are at historically high levels right now. What do you say to those who believe your entry into the U.S. market could have been timed better?

SR: There are really two aspects to it. In a macroeconomic sense, there’s never a smooth line. But based on our view of the world economy, we’re still going to see another five, six, seven years of the bull market in commodities. It will be a jagged line, but the direction will continue in the way it has been for the last four, five years.

On top of that, when we partner with a regional firm we look at a number of years of historical data and financial performance, not just data from the past 60 days. So we feel comfortable with the way we’re going about building the business.

When choosing partners, one of the things you look at in their business culture is whether they’re ‘buying it right,’ which is an old term in the recovered paper industry. When material comes in the front door, are you buying it in a way that you can have a reasonable margin against what the commodity price is at that time? That philosophy works well in many markets, up or down. So if a company has the right business culture on the ‘buying it right’ side, it is going to do well over the long term.

OBM: Are there specific business insights you’ve gained from your experiences in Europe that you’re finding can be successfully implemented here by Greenstar?

SR: There’s still quite a bit of technology transfer to be done from Europe to the U.S. in terms of automation, larger plants, higher productivity, and optical sorting. And then there’s the whole philosophy of upgrading certain commodities, hedging against the prime outlet markets. Those two things would probably be the key learnings. The third is just to treat recycling as a core business as opposed to an adjunct to a landfill and collection business or as an adjunct to a paper mill business. There are many companies in Europe, Greenstar included, whose main focus is on recycling. And this looks like it is going to bear fruit with many of its customers in the U.S.OBM

Greenstar’s Strategic Partnerships
In the past year, Greenstar has acquired majority stakes in five U.S.-based recycling companies that feature extensive operations in major markets, including Pittsburgh, Allentown/Bethlehem, Pa., Northern N.J., Dallas, Houston, and San Antonio. They include:

•Recycle Management Co., led by Gabe Hudock. It’s a regional integrated processor and commodity upgrading company in the paper, plastic, glass, and metals markets.
•Todd Heller Inc., led by Todd Heller, processes bottles and cans, recovered paper, and glass.
•Delta Management Group, led by Tim Herman. It has more than 4,500 managed retail and commercial locations across all 50 U.S. states and 13 Canadian provinces.
•Mid America Recycling Co. Under the management of Brian Meng, ceo, and Mick Barry, vice president, it has built a leadership position in recycling, particularly with new investments in single stream processing. It establishes a strong platform of growth for Greenstar in the central U.S.
•Joseph Damato Paperstock Co., led by Phil Damato, a long-term innovator in providing recovered paper and single stream services in Northern N.J.

“Our plan is to continue to partner with entrepreneurial, well-managed regional recycling businesses while at the same time looking for opportunities for organic growth.”—S. Ragiel, Greenstar