A buyout of the smaller Allied by the larger BFI would seem to be more logical in this wave of industry consolidation. But BFI had its own problems with disappointing earnings, a depressed stock price, lackluster growth and a high-cost centralized management structure.
At the same time, he recognized the "spectacular" growth that BFI experienced from until the late s through consolidation and a more decentralized management structure. The origin of BFI is the stuff of business folklore.
Fatjo's neighborhood was experiencing trouble with trash collection. Complaints went unheard and the trash kept piling up, so Fatjo bought a garbage truck and literally picked up the trash at night, moonlighting after his day job as an accountant.
BFI's method of growth is also worth noting. The company used its stock as currency to acquire a slew of small waste companies in an extremely fragmented market.
BFI's management pioneered the "roll-up" strategy used in a number of industries today. The company's rapid growth didn't go unnoticed by Van Weelden, who formed Allied Waste in Originally built through consolidation, BFI has largely exited the acquisition market since the end of its fiscal accounting year.
At that time, management announced a strategic shift from a focus on external growth through acquisitions to a focus on internal growth measured by cash flow and return on gross assets. Testifying to this shift, in fiscal , company acquisitions numbered only about 20 tuck-ins. Lower costs also enabled the company to undertake a major acquisition program: buying back its own stock.
At about this time Fatjo, his eyes trained on a much larger, regional organization, became partners with Louis A. Waters, then a vice president of corporate finance for a New York securities brokerage. The two of them decided to embark on a program of acquisitions designed to weld together scores of the tiny collection and disposal companies operating across Texas and the South.
To help raise the capital needed for so ambitious an undertaking, Fatjo and Waters in gained control of Browning-Ferris Machinery Company, a publicly traded manufacturer of garbage trucks and landfill equipment, among other things. Not only did Browning-Ferris offer an obvious match for the two partners' collection business, it also allowed them to issue stock for the purposes of working capital and equity swaps. Thus fortified, Fatjo and Waters went to work over the next three years buying up small operators at the rate of one a week.
It is much more profitable to collect waste, for example, from ten large apartment complexes in a row than to collect from the first, fifth, and tenth buildings and then be forced to move elsewhere for the next pickup.
Therefore, as BFI bought up the businesses of rival collectors in Houston or Memphis, its costs per customer dropped sharply and profits accordingly rose, paving the way for further acquisitions. In the meantime, growing public pressure for environmental protection prompted a continuing flurry of new regulations affecting every aspect of the waste industry.
Compliance with such legislation was expensive, in terms of either equipment or knowhow, which in turn made it easier for BFI to buy out financially strapped, smaller competitors. BFI bought out competitors as fast as the contracts could be written.
Most owners of the acquired companies stayed on as managers. The company operated 2, trucks in different cities, employed 7, workers, and had accumulated 60 landfills. The latter would prove critically important, as further regulation and public anxiety made it nearly impossible to create new landfills and raised the costs of operating those already in existence. Dumping charges skyrocketed, adding a new source of bottom-line funds to BFI's resources; more importantly, the scarcity of landfill sites discouraged new competitors from jumping into the business.
Those companies such as BFI and Waste Management that got into garbage early, stayed in and grew at prodigious rates; those that came later found the industry nearly locked up. BFI expanded its landfill holdings whenever possible, and also began handling a new form of waste variously labeled as chemical, toxic, or hazardous.
Although toxic waste would later play an important role in BFI's history, in the mids the company had just begun to explore the complex and notoriously litigious field, chiefly in the form of waste-oil treatment. Phillips had owned a number of the garbage collection companies in Memphis acquired by BFI, and his hands-on experience made him invaluable to the company's founders, neither of whom knew intimately the day-to-day problems of the garbage business.
Phillips remained chief operating officer and served as chairman from until the appointment of William D. Ruckelshaus in , and even then continued as chairman of the executive committee.
Aside from its core business in solid waste, by the mids BFI had developed a number of peripheral interests. It was one of the earliest companies to experiment with the recycling of paper waste, using its own collection supply and also buying paper from thousands of users that could then be treated, shredded, and sold to papermakers. A sharp recession in the paper markets in threw BFI's paper division into the red, however, and in the following year its paper recycling assets were spun off to shareholders in the form of a separate company.
Of greater importance was BFI's first foreign contract, a agreement to provide sanitation services in parts of Spain. The business of international waste services grew rapidly during the s, particularly after rival Waste Management signed a contract in to clean the city of Riyadh, Saudi Arabia, for five years, and it seems that despite its early success in Spain, BFI was generally slow to pursue the many opportunities overseas.
As a result, Waste Management won most of the lucrative international contracts, while BFI only established its presence in Europe and the Far East markets in later years, winning the Riyadh contract back from Waste Management in the next round. Harry Phillips proved to be an outstanding leader for BFI.
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