Dive Brief:

• Closed Loop Partners has purchased a majority stake in Balcones Resources, a Texas-based recycler, through its recently created Closed Loop Leadership Fund. This marks the New York-based firm's first acquisition. Financial terms were not disclosed, though Resource Recycling reports the purchased stake was 80%.
• Balcones founder Kerry Getter will remain in his role as chairman and CEO. Two managing directors from Closed Loop Partners will join the Balcones board, as reported by Recycling Today.
• According to Closed Loop CEO Ron Gonen, the plan is to build on Balcones' existing portfolio by possibly acquiring or building more MRFs. “There are a lot of parts of the state and the region where there is no infrastructure service at the moment — a lot — and that’s going to be the primary focus," Gonen told Waste Dive.

Dive Insight:

Balcones Resources, founded in 1994 by the Getter family, has grown to become one of the more successful private recyclers in the U.S. The company currently has more than 200 employees at facilities in Austin and Dallas, Texas, as well as Little Rock, Arkansas. The Austin MRF, retrofitted in 2012, is seen as a particularly important asset because it holds a processing contract for 60% of the city's residential material.

The Balcones model has long been held up — by Closed Loop and others — as an example of how recycling can work economically with deliberate attention to quality and an emphasis on reliable end markets. 

“We don’t take things into this MRF that we can’t sell," Getter told Waste Dive in 2018, referencing how he believed some large public companies may have done so prior to global commodity shifts because certain materials could cover the cost of others. "When the market is hot, and people are making money, there are a lot of folks who don’t care about the consequences a couple years down the road. We have not fallen into that trap."

Given the financial toll of the recent shake-up, there has been minimal M&A activity for recycling-only assets since Republic Services bought ReCommunity in 2017. While private equity buyers have been active lately, it's even more rare to see one go after recycling because the business may not fit well with their average five- to seven-year holding period. 

"The transaction is unique, in that Balcones is not representative of the usual PE target," Victor Bloede, managing director of Dallas-based Transitus Capital, told Waste Dive via email. "The investing universe for recycling companies is rather narrow in the current market environment. In addition, the field of well-run companies that have been able to survive the downturn is similarly narrow. It appears that a cyclically defiant buyer has found the opportunity to make a solid investment in troubled times."

According to Gonen, Balcones' model is scalable and will benefit from more direct relationships with companies throughout Closed Loop's network. Since launching in 2014, Closed Loop Partners has made 46 other investments across various branches of its platform. This includes a variety of companies with direct relevance for both MRF technology and materials processing. Plus, many key backers from the consumer product and retail sectors are looking for more and more recycled content in their supply chains.

“We feel like the direction that retailers, brands, consumers and regulators are moving is toward a system that’s much more circular," said Gonen. "It may take some time for that full transition to happen, but as investors we’re excited to help lead and participate in that transition."

Beyond growing Balcones, Gonen confirmed the Closed Loop Leadership Fund is actively pursuing multiple other deals throughout the U.S.