Philip Environmental Inc.

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Philip Environmental Inc.

100 King Street West
P.O. Box 2440 LCD 1
Hamilton, Ontario
Canada L8N 4J6
(905) 521-1600
Fax: (905) 521-9160

Public Company
Incorporated: 1990
Employees: 3,166
Operating Revenues: US$732 million (1995)
Stock Exchanges: Toronto NASDAQ
SICs: 8742 Waste Management Consulting Services; 4953 Waste Disposal Services; 4959 Waste Recovery Services

Philip Environmental Inc. is one of the most innovative and fastest-growing environmental firms in Canada. The company is involved in by-products recovery, metals recovery, environmental consulting and engineering, solid waste management, and municipal utility management. With revenues approaching the $1 billion mark, since 1990 the company has grown nearly 40 times its size at that time—an astounding accomplishment by any standard. Although the company’s headquarters are based in Hamilton, Ontario, more than 60 percent of its income is derived from business operations in the United States, and expansion into Alaska and South America will increase the amount of revenues garnered from foreign operations.

Early History

In 1965 Enzo Fracassi and his family arrived in Hamilton, Ontario, from Italy. The new immigrant, an enterprising and ambitious businessman, started a small firm that hauled sand and scrap out of local steel mills and foundries. The company also began trucking sand and gravel for the heavy-construction firms in and around Hamilton. His two sons, Allen and Philip, joined him as soon as they were old enough, fixing tires, cleaning tools, and fueling trucks during weekends and holidays. By the late 1970s, however, due to the effects of a worldwide recession, the business faltered. To help turn the company around, Allen left his job in real estate and Philip returned home from college, but it was too late and the family firm went into receivership.

Undismayed by the failure of the family business, Philip and Allen borrowed money to purchase a few dump trucks and started a new company. At first the two brothers hauled sand from a foundry owned by Canron Inc., in Hamilton. Ordinarily used to make ingot molds for steel mills, foundry sand is peppered with scrap iron. After the workday was over, Philip and Allen would dump the last truckload of sand in their own backyard, then pick out the scrap iron before reloading the sand and driving it to a nearby landfill. Since the brothers had no landfill of their own, they had to pay a fee to dispose of the sand. The less they took to the landfill, the lower their cost of operation, and the more scrap iron they could resell, the greater their own revenue. This approach to doing business was the beginning of Philip and Allen’s success as entrepreneurs.

A New Company Is Born

Owned and managed jointly by the two brothers, the company was known as Philip Enterprises, Inc., throughout the 1980s. During these years the company grew slowly but steadily, essentially combing sand and trash for valuable morsels that could be reworked into more valuable materials. In 1990, however, the company underwent a drastic and fundamental change. Philip and Allen Fracassi sold the entire firm to Lincoln Capital Corporation, a merchant bank with a solid reputation in Ontario. The Fracassi brothers sold their company on the condition that they would remain on board both as managers and as major shareholders.

The purchase of Philip Enterprises by Lincoln Capital was a success from the very beginning—yet few people anticipated the magnitude of the success the company would eventually experience. One of the reasons Lincoln Capital purchased Philip Enterprises was to merge it with Taro Landfill, located near Stoney Creek, Ontario. The Fracassi brothers were the most important customers of the Taro landfill site, making the combination of their business and the Taro landfill a natural fit. Initially called Lincoln Waste Management Inc., the name was changed to Philip Environmental Inc. one year later at the request of the Fracassi brothers, who wanted to rename the firm in honor of their grandfather, Philip Fracassi.

Shortly after the acquisition was completed, St. Lawrence Cement, Inc., purchased a 13 percent interest in the company, which was worth approximately $25 million. Another $65 million was raised when Philip Environmental made a public offering of its stock. This influx of money transformed the company from a regional family operation to a business that had the capital to expand throughout North America. Allen Fracassi became the company’s president and chief executive officer, while his brother Philip assumed the position of chief operating officer. In command of the company and its direction, with more than adequate funds available to implement a continental acquisitions strategy, the two brothers began buying companies as quickly as they could.

Growth through Acquisition

The three most important acquisitions came in 1993, when Philip Environmental bought I. Waxman & Sons, Ltd., Burlington Environmental Inc., and Nortru Inc. Also based in Hamilton, Ontario, Waxman & Sons, a leader in the ferrous and nonferrous scrap processing industry, reported sales of approximately $200 million. When the purchase was completed, the Fracassi brothers hired Robert Waxman to serve as head of Waxman Resources, with the explicit purpose of forming a company to carve out a large market share in the burgeoning field of resources recovery. Waxman immediately began to initiate new ways to recycle all the metals and plastics that worked their way through Philip Environmental.

Burlington Environmental Inc., based in Seattle, Washington, was involved in environmental engineering consulting and chemical waste management. The purchase of Burlington by Philip immediately increased its chemical waste operations by 35 percent and, as the Fracassi brothers were always thinking of expansion, provided significant access to markets in the northwestern part of the United States. Nortru Inc., located in Detroit, Michigan, was a medium-sized, diversified, hazardous waste management and recycling company with revenues of just over $34 million. The acquisition of Nortru gave Philip Environmental access to markets across the midwestern United States. Other important acquisitions during the early 1990s included Recy-clage Cote Nord Inc. and Recyclage d’Aluminum Quebec Inc., both recyclers of aluminum based in Quebec.

With these purchases, Philip Environmental doubled its size within a few months. According to the Fracassi brothers’ strategic plan, the acquisitions resulted in a better variety of services, increased revenues, and geographical diversity. Philip Environmental had grown from its modest beginnings into one of the largest companies in the industry, providing such services as solid waste management, including commercial, municipal and industrial waste hauling and disposal; hazardous waste recycling, including oil, paint, and contaminated soil recycling; resource recovery, including aluminum dross and scrap-metal recycling; and a host of environmental services such as industrial cleaning and vacuuming, consulting, and environmental auditing.

Vertical Integration in the 1990s

The other key to Philip Environmental’s success, in addition to its acquisition strategy, lay in what has been described by the Fracassi brothers as “cross selling.” Allen and Philip became masters in arranging to cross-sell the services of each Philip company to the growing client list of all the rest. In this way, the company provided comprehensive environmental services to its customers. For instance, Waxman Resources sent the tin-plated copper scrap that it retrieved from its brass-mill customers to another Philip-owned subsidiary for de-tinning. The aluminum scraps Waxman Resources retrieved were sent to another Philip company, Recyclage Cote-Nord Inc. This strategy of “cross-selling” resulted in two significant advantages for the company. First, cross-selling was a useful marketing tool the Fracassi brothers used to convince their customers that Philip Environmental could provide them with all the services they required. Second, cross-selling was enormously profitable. In his capacity as president and CEO, Allen Fracassi studied a number of companies that had implemented the cross-selling strategy. He discovered that once the plan was initiated, the companies reported an increase in sales of approximately 50 percent, and pretax profits jumped an impressive 110 percent.

Company Perspectives

Philip Environmental is committed to the highest standards of environmental leadership and compliance in every area of our operations. We will comply with all applicable environmental laws and regulations by: subjecting all our operations to regular internal and external environmental audits; working cooperatively with all levels of government; ensuring that a safe working environment exists for our employees, and encouraging them to identify and eliminate environmental and safety risks. We will minimize or eliminate wastes our clients generate by: applying the principles of reduction, recovery and reuse in all our business activities; converting by-products from one industry into raw materials for another; maximizing the diversion of materials from final disposal; developing and applying innovative and cost effective technologies to meet these goals. We will be open and operate with integrity by: protecting public health, safety and the environment in communities in which we operate; involving communities in our operations and recognizing the importance of their contribution; fostering innovation and excellence, by providing our employees with the tools and training to expand their understanding of our environmental objectives.

When the strategy of cross-selling was combined with the strategy of management retainment, revenues at Philip Environment rocketed upward. A good example of this policy was the acquisition of Intersan Inc. during the early 1990s. In 1966 Intersan was a small firm that operated four trucks and had one contract to haul garbage in a Montreal suburb. By 1990 Intersan owned three landfills, operated more than 150 trucks, and managed the largest waste-transfer facility in Canada. The owner of Intersan, Lucien Remillard, realized that the time of the small, independent operator was a thing of the past in Canada, and that the only way for his business to survive was to make a deal with a larger, more established, and competitive company. Yet at the same time, Remillard, like many entrepreneurs who started a company out of nothing, didn’t relish the thought of relinquishing control. The Fracassi brothers purchased Intersan with the understanding that Remillard would remain to manage that company that he had built. When the signatures of agreement were finally placed on the dotted line, all the parties involved were satisfied. An integration committee was then established to coordinate and consolidate Intersan into the Philip Environmental family and train its managers in the cross-selling strategy.

Competition in the Mid-1990s

The largest of the integrated waste management companies operating on the North American Continent included WMX Technologies Inc., based in Chicago, Browning-Ferris Industries, Inc., located in Houston, and Laidlaw Inc., a Canadian firm, and Philip Environmental was not close to breaking into the ranks of the big three. At approximately the same time, competition within the industry increased dramatically due to excess capacity, falling prices, and shrinking margins. WMX was forced to lay off 1,200 employees and take an after-tax writedown of $363 million, while Laidlaw was forced to take special charges of $225 million that reflected changes in legislation covering waste recovery and disposal. Much of Philip Environmental’s stiffest competition was coming from customers themselves. Many of the companies contracted by Philip Environmental began to change their raw materials or retool their manufacturing procedures in order to lessen the amount of waste generated as byproducts. The less waste, the less money spent paying companies like Philip Environmental for their services.

The Mid-1990s and Beyond

Yet through the mid-1990s Philip Environmental remained highly successful in a remarkably competitive industry. By the end of 1994 the company had acquired more than 20 firms, adding to both the comprehensive services it provided to customers and to its own revenues. Revenues grew rapidly to $253 million in 1993, $570 million in 1994, and $732 million in 1995. Philip Environmental had also successfully expanded its network of facilities throughout North America. In 1992 approximately 90 percent of the company’s revenue came from its operations in Canada and only 10 percent from the United States; by the end of fiscal 1995, however, 40 percent of its revenues came from Canada and 60 percent from the United States. In 1995 the company’s by-products recovery operation accounted for 27 percent of all revenues, while metals recovery accounted for 42 percent, environmental services 14 percent, and solid waste 17 percent.

In one of the most important developments at the company, in 1994 the Fracassi brothers formed a utilities operation to design, build, operate, and manage both industrial and municipal water and wastewater treatment facilities. One year later Philip Utilities Management Corporation had landed six highly lucrative contracts from both industrial and municipal sources. In January 1995 the company began operating and managing water and wastewater treatment plants for the municipality of Hamilton-Wentworth, a region of 500,000 people in southern Ontario. In November of the same year, Philip Environmental purchased Thorburn Penny Ltd., an engineering firm that developed and installed a highly sophisticated computerized system that allowed numerous water and wastewater facilities to be integrated and operated from a centralized location. The Fracassi brothers believed that this technology was one of the most significant developments in the utilities industry and would garner ever increasing revenues in the years to come.

Principal Subsidiaries

Burlington Environmental Inc.; Delsan Environmental Group Inc.; I.W.& S. Ferrous Limited; Nortru, Inc.; Philip Enterprises Inc.; Philip Environmental Services Corporation; Philip Environmental (Quebec) Inc.; Philip Utilities Management Corporation; Waxman Resources.