ASX industrial stock rallying amid $110 million acquisition with 'valuable efficiencies'

This waste management company is expanding its presence in Melbourne.

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Cleanaway Waste Management Ltd (ASX: CWY) shares are starting the week positively.

At the time of writing, the ASX 200 industrials stock is up 2% to $2.75.

Why is this ASX industrials stock rising?

The catalyst for today's gain has been news that Cleanaway is making a new acquisition.

According to the release, the company has agreed to acquire the waste and recycling business and assets of Citywide Service Solutions, Citywide Waste, for a total consideration of $110 million.

In addition, Cleanaway will concurrently enter into a 35-year lease for the waste transfer station located at 391-395 Dynon Road in West Melbourne.

What is Citywide Waste?

Citywide Waste provides waste management services to approximately 1,500 municipal, commercial, and industrial customers in Melbourne. This includes Melbourne City Council.

It also operates the Dynon Road waste transfer station, Victoria's second largest waste transfer station. It is located approximately five kilometres from the Melbourne central business district. Annually, the transfer station receives over 200,000 tonnes of waste and recycling material.

As part of the transaction, Cleanaway has committed to redevelop the Dynon Road waste transfer station into a larger, efficient, modern post collections facility. This is expected to cost the company approximately $35 million. An additional $10 million contribution will be made from the City of Melbourne over the first four years of Cleanaway's ownership.

Citywide Waste generated EBITDA of $10.7 million and EBIT of $6.4 million in the twelve-month period ending February 2024.

'Valuable efficiences'

The ASX industrial stock's CEO, Mark Schubert, believes the acquisition represents an attractive expansion opportunity. He said:

This transaction represents an attractive opportunity to expand our Solid Waste Services business in metropolitan Melbourne. Integrating Citywide Waste into our network is expected to deliver valuable efficiencies, while facilitating growth through the broadening of our municipal and C&I collections capabilities. The re-development of Dynon Road will almost double its current operating capacity, unlocking attractive earnings growth for shareholders. It will also support future volume growth into our post collections infrastructure assets.

Schubert also highlights that the Dynon Road acquisition aligns with its BluePrint 2030 strategy. He adds:

Securing this site in inner-city Melbourne provides a strategic position in the densely populated Melbourne metropolitan area and aligns with our approach of using M&A to accelerate the delivery of our BluePrint 2030 strategy. We are confident that the acquisition of this unique asset will deliver attractive returns to shareholders over the life of the lease.

The acquisition remains subject to a range of conditions precedent including ACCC regulatory approval.

Cleanaway shares are up 8% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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