With new owners in place, Denali Water Solutions is moving quickly to continue expanding the wastewater-treatment services it provides to cities and large industrial customers across the United States.
TPG Growth, a $14.5 billion private-equity investment firm, closed Jan. 29 on its acquisition of Denali Water in Russellville. Two days later, Denali purchased Sustainable Resources Group of Pennsylvania, giving the Arkansas company another foothold to expand its operations in the Northeast.
"There are plenty of opportunities out there for us," said Chief Executive Officer Andy McNeill, who also has an ownership interest in Denali.
Denali has become a substantial provider of environmental services in the United States, growing into a nearly $300 million company with 850 employees across the nation. The company's leadership position in the industry was attractive to TPG Growth.
"Environmental services and, in particular, wastewater treatment are sectors in which TPG Growth has been exploring potential investments for some time," said Ransom Langford, a partner with the firm. " As a clear leader in that industry, Denali stood out to us as an ideal candidate to pursue an investment."
Five years ago, Denali Water had $30 million in annual revenue and about 50 employees when McNeill brought in the Firmament Group, which was started by Arkansan Mack McLarty and his family, as a key lender and investor to help McNeill buy the company. McLarty is a longtime Little Rock business executive who also served as chief of staff and an adviser to President Bill Clinton.
The Firmament Group had access to small-business funding that it could provide to Denali and the investors shared a hometown culture flavored with a keen strategic approach to grow businesses.
"They bought into our strategic plan and they had a Southern feel and an Arkansas approach that was important to me and we just aligned perfectly," McNeill said of partnering with Firmament.
For its part, Firmament was interested in supporting what it viewed as a well-managed company with opportunities to add value in the coming years. Having headquarters in Arkansas was an added plus.
"We target places like Arkansas because we believe they're largely overlooked by the typical Wall Street capital providers," said Firmament co-founder and president Chris Smith, who worked directly with the Denali team. "We have a large degree of comfort and familiarity with the Arkansas business community and its participants, and that certainly plays a part in our focus on the state as well."
The two formed a partnership on Halloween night in 2014 that turned into a profitable treat for both companies. Together, they made about a dozen acquisitions and positioned Denali Water as a key player in wastewater treatment, serving both city-owned facilities and large industrial customers.
"There was an opportunity in the industry to go out and purchase companies or assets at attractive valuations," Smith said. "We could be aggressive in rolling some of the industry up.
"Andy and the Denali team did an unbelievable job of stitching those together and seamlessly integrated all the things that we were doing. That's where the real magic happened."
The Firmament Group's backing fueled Denali's growth, according to McNeill. "They provided us with the help and the financial support to get us to where we needed to go," he said "We wouldn't be here without the right partner to start with, and that's the Firmament Group."
Denali Water operates throughout the United States and has offices in California, New York, Massachusetts, Alabama, Texas, Georgia, Maryland, Colorado, and Connecticut. Its corporate headquarters is in Russellville and the company has 160 employees in the state.
Today, Denali Water serves some of the nation's largest cities -- New York, Los Angeles, San Francisco and Atlanta -- while also supporting small cities and large industrial sites across the country. The company operates in 35 states and its customers include large food-processing companies such as Tyson Foods, Conagra Brands, Kraft Foods, Perdue Farms and international consumer goods provider Unilever.
Denali treats and processes biosolids that result from the wastewater treatment process and converts the byproduct into fertilizer, compost and mulch that is sold as WeCare Organics and WeCare Compost in various markets.
"We're recycling back into the ground," McNeill said, noting that the company has three compost facilities it operates in New York City alone.
"The sludge that we handle just never stops -- there's a constant stream of waste that is generated from these operations," McNeill said, noting there are 16,000 wastewater facilities in the United States operated by municipalities. There are thousands more set up by private industry to serve their food-processing plants. Many of those operations would be prime targets to acquire.
"I believe we can build this into a $1 billion business with consistent organic growth and the right acquisitions," McNeill said. "TPG has a fantastic track record of investing and they have a great network that we can tap into to help with our growth plan."
Going forward, expansion plans include growing existing operations and purchasing companies or assets that expand the specialty waste and environmental recycling and disposal services that Denali provides today.
TPG Growth brings deep pockets and extensive management experience to the partnership with Denali. The firm is part of TPG Capital, a San Francisco investment firm that manages $119 billion of assets across the globe.
While Denali has achieved "impressive growth," Langford said, he noted the company services less than 5% of its potential market. "We believe there are ample opportunities to continue to grow the business both organically and through acquisitions," he added.
Smith got a front-row seat working with the Denali team and he is a fan who believes, with the right deals falling into place, that the Arkansas company has a good shot at reaching its goal of $1 billion in annual revenue.
"The potential for that to happen is absolutely there," Smith said. "I'd be surprised if they weren't able to do it. They have built a powerful combo in partnering with TPG. I wouldn't bet against them."
SundayMonday Business on 03/01/2020