The disposal companies he visited were facing major capital expenditures because the federal government had stepped up its enforcement of good disposal practices. Inexpensive trucks were being replaced by big front-loaders. Many of the companies that were being forced to make these expenditures were run and owned by men in their fifties whose companies were their major asset. They were concerned about the national companies that were eyeing them for acquisition.
By the end of his trip, Fatjo's plans had changed dramatically. He no longer planned to expand into two cities; his mission had become national in scope. He and his partners started crisscrossing the country, talking to companies they were interested in acquiring. But 12 months later they had failed to make a single purchase.
Convinced that his instincts were right, Fatjo sought the advice of a friend, Lou Waters, head of the corporate finance department at Underwood, Neuhaus, an investment securities firm in Houston. Waters told Fatjo he had three major problems: His company had no financial credibility and its stock was not negotiable; it lacked proper organization; and Fatjo had no large-company management experience.
For the first time, Fatjo realized his company wasn't quite ready to move into the big time. To give American Refuse the financial depth it needed, Waters was made a partner chairman of the company. Waters then set out to solve the problems he'd identified.
Solving the problem of financial credibility depended largely on solving the problem of the stock's negotiability. American Refuse had hoped to use its stock to purchase other firms, but it was privately held and therefore offered little liquidity. The solution was to merge with a publicly held company with a solid reputation. The search for such a company eventually focused on the Browning-Ferris Machinery Co. of Dallas and Houston. Using $600,000 raised in a private placement and from bank loans, Fatjo and his partners began purchasing shares of the company. By April of 1969, they had gained control of it.
"We bought an excellent company and a stable image," Fatjo says. "The other waste disposal firms were going to need to feel that ours was a solid company -- and Browning-Ferris was. It had been around since 1913. It manufactured heavy equipment, some of which was sold to landfills, and had $4.5 million in equity, no debt, and a reliable cash flow."
Fatjo merged American Refuse with Browning-Ferris, creating Browning-Ferris Industries Inc. (BFI), and began the expansion process again. This time, the companies they approached were more amenable to the notion of being purchased. The first acquisition was a trash company in Cincinnati, which was purchased for stock and cash. Most of the companies acquired thereafter were bought through the issuance of common stock.
"Our plan was to expand geographically," says Fatjo, "and then to expand the types of services offered." To make BFI as efficient and productive as it needed to be, he realized, he needed a top-notch operating head. He chose for the position Harry Phillips, who had run successful solid-waste disposal operations in Houston, Memphis, and San Juan, Puerto Rico. During the acquisitions period, Phillips was in charge of management, Waters of administration, and Fatjo of development.
During the next two years, BFI assumed control of more than 100 waste disposal firms. The rate of growth was so rapid that BFI was forced to develop what amounted to an assembly-line process for acquisitions. The starting point was the formation of an acquisitions team within the development area. Eventually, many of the senior officials with the companies BFI acquired became negotiators on the team.
The principals drilled team members on BFI's objectives and acquisitions plan, then sent them out to locate the best companies within given geographical areas. Typically, a team member would prepare a preliminary report on a company for review by other members. Then, if the company looked good, a negotiator would visit it and assess the management capability of its owner. "One of our main concerns was that their management be compatible with our own," says Fatjo, "so we spent a lot of time getting to know each other." If all signs remained good, the owner was invited to Houston to meet with members of the Browning-Ferris management team. Additional meetings might follow, and eventually the possibility of acquisition would be broached. If the owner was interested, BFI then conducted a purchase investigation, analyzing all of the numbers thoroughly.
Finally, there would be an offer, and, generally, further negotiations. "You rarely reached agreement the first time," Fatjo recalls, "but by that time the owners had gotten to know us very well -- there had been a lot of meetings, a lot of discussions -- and they'd developed a pretty good feeling for us. As a result, almost no one said no." As soon as an agreement was reached, the legal department drew up the necessary documents, the accounting department began the process of integration, and the management section took over responsibility for all operating decisions.
The process usually took a year between the time BFI became interested in a company and the time it acquired it, but because there was so much activity going on, the company averaged five acquisitions a month. "All of my experience was with Browning-Ferris," Fatjo says, "so I can't speak with authority, but I'm fairly confident that our acquisitions program was unique."
For several years, Fatjo was constantly on the go, flying in and out of Houston to size up prospective acquisitions, make deals, oversee transitions, upgrade operations. "I was gone all the time," he recalls. "I'd leave on a Sunday night or a Monday morning, and not be back until the end of the week. Even if I was dead tired, I'd get up again the next day and get going. I don't remember a lot about my two children between the ages of three and eight. I remember the business details, but not the personal things. My personal life was totally neglected."
In April 1972, Fatjo placed an $80-million stock offering for Browning-Ferris, and in 1973 he was divorced. For the first time in a long while, Fatjo became concerned about where he was heading. "I was getting a lot of satisfaction out of what I was doing," he says, "but I had the feeling that I probably wasn't going to last more than another eight or nine years at the rate I was going. I knew that there must be a way to have that commitment and that desire to accomplish and, at the same time, be able to carry it on for as long as you liked."
