With consumer attitudes becoming warmer toward rerefined engine oils, demand for them is increasing. In response, one of the largest
Although Heritage-Crystal Clean was organized in 1999, its history can be traced to The Heritage Group, a family-owned business founded in
HES generally focused on large industrial customers, but it had some demand for waste collection and recycling from smaller firms. “To address the needs of smaller customers, HES created a service called Petroleum Management to pick up small quantities of used lubricating oil, and another called Crystal Clean to provide solvent parts-cleaning services,” said Greg Ray, Heritage-Crystal Clean chief operating officer. “By the 1990s, Crystal Clean and Petroleum Management were generating annual revenue of about $10 million, concentrated in the
Separately, during the 1960s, a Chicago-based businessman named Don Brinckman had acquired a small business called Safety-Kleen and put in place a plan to develop the parts cleaning business across the U.S. “Over the next 30 years,” Ray added, “Brinckman grew Safety-Kleen into a $1 billion company with more than 160 branch locations in the U.S. and Canada, providing a wide range of environmental services to hundreds of thousands of small customers.”
In 1987, Brinckman decided that Safety-Kleen should expand into used oil recycling, so he acquired Breslube, based in
In 1998, though, Safety-Kleen fell victim to a hostile takeover engineered by Laidlaw Environmental Services, a Canadian company in the hazardous waste business. “Laidlaw management dismissed the top Safety-Kleen management and relocated the corporate headquarters to
Safety-Kleen emerged from bankruptcy in 2003 and soon began to grow and build again. Still
Out of the Ashes
“After the Laidlaw takeover, I had to sit idle for 12 months to observe my noncompete restrictions,” said Chalhoub. “But after that time had elapsed, I was ready to develop a new business opportunity for myself and other employees who had exited Safety-Kleen with me.” He connected with the family that owned THG, and together they determined that the Crystal Clean business would provide a great foundation for a new company focused on serving the environmental needs of small customers.
THG contributed the Crystal Clean and Petroleum Management assets to a new entity called Heritage-Crystal Clean LLC. “At the outset,” Chalhoub explained, “Heritage-Crystal Clean planned to expand geographically and develop a strong growth culture. We hired branch managers and created a regional structure to support local operations.” The company also welcomed Don Brinckman as a director in 2002.
“The company was profitable by 2004 and generated sales in excess of $100 million by 2008,” Chalhoub added. That year, the company had a successful initial public offering as Heritage-Crystal Clean Inc.
For the year just ended, Heritage-Crystal Clean had revenues of $252 million, including $108 million in oil product sales, largely base oil. Net income for 2012 was $2.3 million.
Greg Ray (also a Safety-Kleen alumnus) explained that during its first decade, HCC’s business was focused on environmental services; namely, parts cleaning and hazardous waste drum collection, recycling and disposal.
“By 2010, we were preparing to enter the used oil rerefining business,” he said. “Most of our senior management had worked in used oil collection and rerefining earlier in their careers, and it was a natural move to get back into this business.”
To support this initiative, the company constructed the
“Today, we operate 71 branches in 40 states, with roughly 900 employees,” said Chalhoub, “and our annual revenue is approximately $250 million, divided equally between environmental services and our oil business.” The branches supply 75 to 80 percent of the used oil input to the
Products & Markets
Ray said, “Within environmental services, we offer parts cleaning; drum collection, recycling and disposal; and vacuum truck services. Our oil business includes used oil collection and recycling, oily water collection, and the sale of products and byproducts from our rerefinery.” The company’s rerefinery produces API Group II base oil, as well as byproducts such as hydrotreated fuel and asphalt extender.
“Our customers include tens of thousands of small generators of used oil and hazardous waste in 40 states, almost everywhere except for the
Customers for the base oil produced in
The company already had a sizable operation in
“Before we built the rerefinery, we were already in the business of picking up waste from small customers,” said Ray. “These customers generate used solvent, hazardous waste and used oil. And they told Heritage-Crystal Clean that they wanted us to expand into used oil collection to be able to handle all their requirements related to liquid and hazardous waste.”
“Since we knew something about the business,” said Hillstrom, “we felt we would be unable to offer a competitive and successful program until we had a rerefinery behind us to upgrade the value of the used oil.”
“We had built a successful used oil collection and rerefining business earlier in our careers,” Chalhoub added. “In addition, we knew that business had proven profitable for the new owners, and we felt that with dedication and patience we would be able to repeat our success in a market that has room for new entrants.”
Making Their Mark
“In all the markets where we compete,” Ray observed, “we face vigorous competition, mostly in the form of lower prices.” For example, in February the company noted that the average spot price for Group II base oil declined by about 5 percent in fourth quarter 2012, compared to the third quarter. This deterioration followed a drop of approximately 10 percent from the second quarter to the third quarter.
In early 2013, Group II spot prices were still slipping, prompting Chief Financial Officer Mark DeVita to state, “We believe that current base oil pricing and the resulting spread between crude oil and lube oil prices reflect conditions that are not sustainable in the long run for the virgin production of lube oil from crude.” Indeed, as this issue goes to press, some upward pressure was being seen in Group II postings.
On the environmental services side of the business, Hillstrom said Heritage-Crystal Clean anticipates a continuing shift away from solvent-based parts cleaning toward aqueous parts cleaning. “This business is among the fastestgrowing parts of our company. We have acquired patents on some aqueous parts-cleaning machines, and we have invested in the development of a leading aqueous cleaning chemistry.”
He outlined the company’s philosophy of trying to help small shops that typically are not very experienced with the requirements for hazardous waste management: “We try to design our services so they are easy to use, and remove administrative and economic burdens from our customers.”
“We don’t have many challenges stemming from government regulation,” said Ray. “In most cases, when we have an opportunity to provide input to legislators or regulators, we feel it is best to encourage the government to play a very limited role. We think that existing penalties for improper waste management are sufficient to discourage intentional pollution, and more usually can be accomplished by enforcing existing rules than by adopting new ones.”
Look to the Future
“Heritage-Crystal Clean been growing its revenue at an annual rate of more than 20 percent for the past decade,” Ray pointed out. The company hopes to continue to see double-digit top-line growth through a strategy that combines:
• Geographic expansion, as it continues to open new branches and “fill in the map.”
• Increasing sales at existing locations by signing up new customers and selling more services to current customers.
• Product line extensions through expansion into new lines of business. Aqueous parts cleaning, for example, is a quickly changing arena, so the company has launched a new line of Aqua Filtration Service products.
• Expanding the used oil rerefining business. The
The company is also looking to grow by acquisition. “While we have made relatively few acquisitions in recent years, we are always evaluating opportunities to add to our organic growth or expand our service territory via an acquisition,” said Chalhoub.
At the beginning of this year, the company acquired a controlling interest in Mirachem LLC, which supplies aqueous fluids for parts cleaning. “With the Mirachem chemistry and our patented aqueous parts-cleaning equipment,” Chalhoub said, “we are very excited about the potential of our aqueous parts cleaning service offering.”
He ended by saying, “Our success going forward is ultimately based on our ability to sustain a growth culture, where our employees are working to create a larger and more successful company.”
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