Stericycle Inc.

28161 North Keith Drive
Lake Forest, Illinois 60045
U.S.A.
Telephone: (847) 367-5910
Toll Free: (800) 355-8773
Fax:(847) 367-9493
Web site: http://www.stericycle.com

Public Company
Incorporated: 1989
Employees: 550
Sales: $270 million (1999)
Ticker Symbol: SRCL
Stock Exchanges: NASDAQ
NAIC: 562112 Hazardous Waste Collection; 562211 Hazardous Waste Treatment and Disposal

Stericycle Inc. is the largest provider of regulated medical waste management services in the United States. The definition of regulated medical waste is any waste that gives rise to or causes an infectious disease or that harbors a human pathogenic organism. Medical waste thus includes such items as disposable, single use products as needles, gloves, syringes, and laboratory and surgical room supplies that have come into contact with bodily fluids or blood; blood products; and cultures of infectious agents. Accordingly, the company provides comprehensive medical waste management services that include medical waste collection, transportation, treatment and disposal. The firm’s acquisition of BFI Medical Waste Business in April 1999 catapulted it into the upper echelons of medical waste management. Yet the purchase of BFI was only the latest in a series of strategic acquisitions that have been made by management starting in 1992. Stericycle operates throughout the United States, in four Canadian provinces, and in the late 1990s implemented an aggressive expansion program into Central and South America.

Late 1980s Origins

The company was founded and incorporated in 1989 by a group of investors who had extensive experience in both hospital services and the pharmaceutical industry. The anticipated future growth of the medical waste management services industry was the prime factor in convincing these executives of the potential for establishing such a firm, with the estimated market amounting to approximately $1.5 billion by the year 2000. The early years of the company’s existence focused primarily on research and development. By the end of its first full year in business, 1991, Stericycle boasted a client list of 12 and sales of $1.6 million. Abbott Laboratories executive Mark C. Miller was brought in to serve as the company’s president and CEO.

One of the company’s developments, perhaps the most important service the company provided during the early years of its existence, was the Electro-Thermal-Deactivation treatment process. A proprietary waste management system, ETD was the only commercially-effective system that included the six following components: 1) it eliminated human pathogens in medical waste products without producing dangerous emissions or liquid effluents; 2) it reduced the total volume of medical waste by nearly 85 percent; 3) it made medical waste unrecognizable; 4) it allowed for the recycling of plastics from medical waste products; 5) it allowed for the remaining medical waste to be used as safe landfill or useable fuel in energy production; and 6) it was a cost-effective method. Using its ETD technique as a primary marketing tool, the company was able to open its first ETD treatment facility in early 1992 in Morton, Washington, which was followed closely by additional facilities in Woonsocket, Rhode Island, Loma Linda, California, and Yorkville, Wisconsin.

The 1990s: Growth and Expansion

Stericycle was soon providing provide medical waste collection, transportation, treatment, disposal, reduction, reuse and recycling services, with additional educational and consulting services primarily in selected states across America. In addition, as part of the services provided to recycle medical waste, the company supplied medical waste plastics to a manufacturer that made new plastics products.

From its inception, management at the company focused all its efforts and resources on developing proprietary treatment and recycling processes, constructing and equipping its regulated medical waste treatment facilities, building a recycling, research, and development center, and obtaining the necessary government permits and approvals to conduct its business. This initial strategy was a direct result of management’s perception of certain trends and developments within both the health care and regulated medical waste industries. During the late 1980s, the handling and disposal of medical waste generated a great deal of attention from the general public as well as from government regulatory agencies due to a incident which occurred in 1988. During that year, disposable syringes and other medical waste washed upon the shore along the coastlines of New York and New Jersey. Concerns about the possible transmission of HIV, hepatitis B, and other infectious diseases heightened awareness about the proper management of medical waste. In response, the federal government enacted the Medical Waste Tracking Act of 1988 that established a program for tracking and treating medical waste. Additionally, OSHA issued specific regulations regarding the handling of and exposure to medical waste and the exposure to bloodborne pathogens.

In light of these regulatory developments, Stericycle management believed that health care providers were going to focus on six concerns, including the reduction of on-site handling of medical waste in the attempt to reduce contact between such materials and employees, the assurance of safe transportation of regulated medical waste, the assurance of the destruction of potentially harmful infectious human pathogens, the minimization of medical waste disposal sites on the environment; and the participation in medical waste recycling programs where convenient. The company’s ETD process was just one response to the above developments. The two additional commercial technologies that Stericycle focused on for treating regulated medical waste were incineration and autoclaving. Incineration burned medical waste and reduced it to ashes, thus reducing the volume of waste. Autoclaving treated medical waste with high temperature steam and pressure that kills infectious pathogens. All three of the company’s principal treatment technologies were considered state-of-the-art at the time, and provided the company with a firm basis to expand its operations.

In 1993, with high expectations for industry growth, the company embarked upon an aggressive acquisitions policy. These acquisitions included: Therm-Tec Destruction Service of Oregon, Inc., in Portland, Oregon; Recovery Corporation of Illinois, in Lombard, Illinois; Safe Way Disposal Systems, Inc., in Middletown, Connecticut; Safetech Health Care in Valencia, California; Bio-Med of Oregon, Inc., in Portland, Oregon; WMI Medical Services of New England, Inc., in Hudson, New Hampshire; Doctors Environmental Control, Inc., in Santa Ana, California; and Sharps Incinerator of Fort, Inc., in Fort Arkinson, Wisconsin. Each of the acquisitions were selected for its ability to provide the company with additional volume for its treatment facilities, as well as for a substantial new base of customers that accompanied the purchases.

This strategic acquisitions plan of Stericycle occurred during the same time that alternate care generators grew in importance. During the late 1980 and early 1990s, in response to health care containment costs and the growth of managed care, care for patients began to shift away from high-cost acute care settings as found in hospitals to less costly off-site alternative treatment locations. In fact, the total expenditures for alternative site health care locations grew from $5 billion in 1985 to nearly $22 billion by the end of 1994. The result of this development meant that such common diseases and conditions as neurological conditions, infectious diseases, digestive disorders, HIV/AIDS, and a wide variety of cancers were treated in alternative site locations rather than in hospitals. Most importantly for Stericycle, these alternative care sites began to provide a significant source of revenue for the regulated medical waste industry since they did not produce a large enough amount of medical waste to justify the capital expenditures for their own medical waste treatment facilities. In order to provide services for getting rid of the small quantities of medical waste that these alternative care sites generated, Stericycle entered into a number of strategic telemarketing agreements with such organizations as the Massachusetts Dental Society and the Sisters of Providence Health System located in the states of Oregon and Washington.

By 1993, company sales had reached $9.1 million, representing a very small share of the billion dollar industry. Moreover, the company continued to realize net losses, having invested capital in acquisitions and improving operations. However, this strategy would soon pay off; by the end of fiscal 1996, sales had increased to $24.5 million, and then they skyrocketed to $46.2 million by the end of 1997. Much of the increase in sales during this period was a result of management’s strategy to focus on higher-margin alternative health care sites, and the additional revenues derived from the company’s aggressive acquisitions plan. Approximately 70 percent of the firm’s revenues were generated from hospitals, blood banks, and pharmaceutical companies, while 30 percent was generated from outpatient clinics, medical and dental offices, dialysis centers, laboratories, biomedical companies, schools, park districts, funeral homes, fire and police departments, municipal health departments, correctional facilities, and veterinary offices. Buoyed by its success and in need of capital to continue expanding its operations, in 1996 Stericycle made an initial public offering of its stock on the NASDAQ Exchange.

Key Dates:

1988:

Medical Waste Tracking Act enacted by U.S. Congress.

1989:

Stericycle Inc. incorporated and opens doors for business.

1992:

Company opens its first Electro-Thermal-Deactivation Treatment Process Facility in Morton, Washington.

1993:

Sales reach $9.1 million; management implements aggressive acquisitions strategy.

1996:

Sales increase to $24.5 million; Stericycle makes public stock offering on NASDAQ.

1997:

Sales jump to $46.2 million; international expansion begins with joint venture firm, Medam, in Mexico City

1998:

Twelve additional acquisitions; sales increase to $66.7 million.

1999:

Stericycle acquires Browning Ferris Industries, Inc.

Late 1990s and Beyond

During the late 1990s, Stericycle management continued its aggressive acquisitions strategy. In 1997, the company established a joint venture firm, Medam, to build a facility that would use its proprietary Electro-Thermal Deactivation technology in order to provide services to health care sites in and around Mexico City. Stericycle also purchased Med-Tech Environment Limited, a company based in Toronto, Canada with operations throughout the provinces of Alberta, British Columbia, Ontario, and Quebec. At the same time, Stericycle entered into an agreement with Companhia Auxiliar de Viacao e Obras (CAVO), to license its ETD system for use in Brazil. In addition, the company purchase all of the outstanding stock of Waste Systems, Inc., with it primary operations in the southwestern portion of the United States. However, the more important factor in the WSI acquisition involved Stericycle’s interest in positioning itself to capitalize on WSFs nascent operation in Germany. With another 12 acquisitions during 1998 alone, the company had acquired 29 firms from 1993 to the end of 1998, doubled its customer base, and increased it sales volume to $66.7 million.

Along with the aggressive acquisitions strategy that Stericycle had formed for penetrating overseas markets, management also focused on consolidating and expanding its presence in the United States. Stericycle acquired Regional Recycling, Inc. and Controlled Medical Disposal, Inc., both located in New Jersey, and Allegro Carting and Recycling, Inc in New York City. All of these purchases significantly enhanced the company’s operations in the northeast portion of the United States. In the Midwest, Stericycle bought Medisin, Inc., located in Kentucky, and Superior Services of Wisconsin, Inc. In the Southeast, the company purchased 3CI Complete Compliance Corporation, while in the Southwest additional acquisitions of Mediwaste Disposal Services LLP and Arizona Hazardous Waste Disposal strengthened Stericycle’s position.

The most far-reaching acquisition, however, was the company’s purchase of Browning-Ferris Industries, Inc. (BFI). Stericycle entered into an agreement with Allied Waste Industries, Inc. to buy all of the medical waste operations of BFI, which were located throughout the United States, Canada, and Puerto Rico, and the entire medical waste management operation of Allied Waste itself. The BFI Medical Waste Business, at the time of the purchase in April 1999, was the largest medical management waste services firm in North America, with over 120 locations. With a fully integrated and regulated medical waste collection, transportation, transferral, treatment and disposal system in operation, the company reported revenues of approximately $198 million for fiscal 1998 and had over 1,400 full-time employees. Thus, in one carefully thought-out acquisition, Stericycle tripled its annual revenue base but, even more significantly, added over 200,000 customers to its current client list of 78,000.

Management at Stericycle were convinced they had engineered one of the most unique and important strategic acquisitions in the industry to date. Virtually overnight, Stericycle substantially expanded both the size and scope of its operations. At the same time, management believed the acquisition created significant economies of scale due to the fixed costs within the industry that were associated with the collection and treatment of medical waste. In fact, management was confident enough to project a savings of nearly $18 million within 24 months of closing the acquisition transactions. In terms of complementing Stericycle’s already existent operations, the acquisition of BFI was seen as enabling the company to better serve its customers throughout North America.

Undoubtedly, Stericycle had engineered one of the most successful acquisitions in the medical waste management industry to date. As a result, the company was poised to establish itself as one of the pre-eminent leaders in the field. If management could incorporate and utilize the vast resources of personnel and equipment that BFI brought with it, the future of Stericycle seemed very bright.

Principal Subsidiaries

Med-Tech Environmental Ltd.; BFI Waste Management, Inc.; Medical Compliance Services, Inc.; Environmental Control Company, Inc.; Waste Management, Inc.; Waste Systems, Inc.

Principal Competitors

Medical Waste Management, Inc.; Scherer Healthcare, Inc.; Waste Management, Inc.

Further Reading

Comerford, Mike, “Stericycle Deal for Allied Waste Unite a ‘Milestone’” Chicago Daily Herald, April 16, 1999, p. 1.

Marcial, Gene G., “Stericycle: A Clean Play,” Business Week, October 19, 1998, p. 152.

Mayors, Diane, “Stericycle President & CEO Interview,” Wall Street Corporate Reporter, February 4, 1999.

McMullen, Cheryl A., “New Industry Leader: Stericycle Quadruples Size, Buys BFFs Medical Waste Assets,” Waste News, December 20, 1999, p. 11.

Oloroso, Arsenio, Jr., “Stericycle Aiming for Top of the Heap,” Crain’s Chicago Business, May 4, 1998, p.4.

“Stericycle Announces International Expansion,” Wall Street Journal, October 26, 1999, p. C7(E).

“Stericycle in $440 Million Deal with Allied,” New York Times, April16, 1999, p. C4.

“Stericycle Inc.,” Wall Street Journal, April 16, 1999, p. B6(E).

“Stericycle Inc.,” Waste Treatment Technology News, December 1999.

“Stericycle Makes Acquisitions,” Wall Street Journal, August 12,1999, p. Cll(W).

“Stericycle Reports 85% Increase in Net Income for Third Quarter, 1999,” Wall Street Journal, November 3, 1999, p. C4(E).

—Thomas Derdak