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John: Welcome to another edition of the Impact podcast. I am John Shegerian, and I am so honored to have with us today Scott Sergeant. He is a longtime friend. He is also the managing director and the head of environmental services at Houlihan Lokey. Welcome to impact, Scott Sergeant.

Scott Sergeant: Thanks a lot, John. I am happy to be here.

John: Well, you know, you have been a longtime friend Scott, and our working relationship goes back as well. I have seen you grow this environmental services practice at Houlihan Lokey over the years, and your always seem to be in and around every relevant environmental deal that is going on in the United States. I would like you to share a little bit about your background, first leading up to before you joined Houlihan Lokey, and then talk about joining them, and how and why you grew that practice.

Scott: Sure, Jack. Well, look, like it has been a pleasure. Yes, we have known each other a long time, and I always cherished both our personal and business relationship. I am so happy to be here, and I love what you are doing on this podcast.

John: Thank you.

Scott: And you know, what you talked about on this podcast is definitely something that hits very close to home, and really resonates with me and my practice. As you mentioned, I have actually found in our environmental services practice several years ago, here at the firm — before that, you know, after college — working in corporate banking for a couple of years — went back to business school, and out of business school, joined Houlihan Lokey. I have been with the firm now for 19 years, which is a long time with one firm in this industry, but it is not uncommon at Houlihan Lokey.

People build their careers here and stay here for two main reasons; one is we have fun doing on what we are dealing, we have a really strong culture, enjoy working with one another until we just keep growing every year as a firm. And so, it is never — every day is an exciting day. After working at Houlihan for about 13 years or so — doing a number of things, financial restructuring — for the first couple of years being more of a generalist, and then a person. I got to a point in my career where I wanted to focus on a particular sector, that is what most people do in the industry. They dedicate to an industry, become an expert in that field, and it is the way to differentiate and really build a career.

So, when it was that time for me to pick a spot, I had try to find something where they really had meaning to me, and the environment, as well, had always been something that I have had interest in. We had not done a number of deals in this space, and that is what I decided to do. I did not want to call on companies that just manufacture widgets for a living. Nothing. We cannot stop manufacturing, but I wanted to do something where, you know, really, I could marry my key passions with my banking career.

John: You know, Scott — but you were really early. I mean, you were one of the first people I ever met in banking in all my travels that was really focused on the environment. Did that come from something in your upbringing, either mom or dad, family oriented or education oriented, when you were growing up in New Jersey, or is that just something that evolved as an adult when you got out of university?

Scott: Yes, that is a great question. I do not think I consciously, really thought about it until my professional career. But certainly, I have always had a passion for growing up on the Jersey Shore, and as a kid going to the beach every day and in the early 80s, you know, being mindful of where you step on the beach when I was, you know — I was very young when there was a period of time where medical waste was washing up on the Jersey Shore, on a regular basis, one or two summers that really got bad. And that is when organizations like Clean Ocean Action and others, really stepped up. And I saw all that happening when I was in school and was able to participate in that to some degree.

And then, I spend most — actually, spent several summers in the area to landscaping, you know — I mean, going back to as a kid, you know, 12 or 13 years old. I was cutting lawns and watering all my neighbors’ yards for several summers. You know, saving up for my first car. And then, during college, I worked several summers for a landscaping company. Not just cutting lawns, but planting trees, planting bushes, and make — you know, transforming the look of homes, and I love doing that. Actually, that is something that I have reminded myself during this pandemic of shelter and place. You know, looking for things to do and getting outside.

That is something where I could spend a lot of time on, and you know, just — and I remember how much I really enjoyed doing that. And so, just be outside, enjoying nature, and keeping — making things greener and greener, and as clean as it can be.

John: That is so wonderful. So, talk a little bit about the journey. So, when you started your practice at Houlihan Lokey, for our listeners out there that want to find Houlihan Lokey, and find Scott, you could go to www.hl.com. Talk about an easy URL, www.hl.com. How did it start, and what kind of companies were you representing years ago? And now, how has it evolved over — how has your practice evolved over time?

Scott: Well, it started out just having worked on a couple of environmental related deals. I would say the first real environmental services company I work for is 14 years ago. I always remember because it was right the time of my son — was born. It was a business called Soul Safe, and they take — they manage contaminated soils that have some sort of hydrocarbon contamination, and then they traded, and then beneficially reuse that soil for a variety of reasons. And that was — we sold it from one private equity firm to another, it was a great transaction. There is a lot of interest in the business.

But it was still limited, I think, it was still their only — you know, some you know, percentage — probably some small percentage of private equity investors that would invest in a company like that. Just give him some of the pursuit of liabilities. That same business, all else being equal, actually would resonate with virtually any private equity investor today. Just given, you know, how — recognition and the interest in the sector has evolved in that short period of time. So, you know, after Soul Safe, and having done a number of other transactions, you know, I still have a generalist banker. And when it became time to really go in one direction, I built the business plan around the space, and I wanted to leverage. Somewhere, we had a critical — and expertise because experience and deals could get more deals, right.

John: Right.

Scott: We had a good grounding of it, and you know — and then, part of the business plan, we really came down to just a few key principles. One is, you know, it is a huge industry, depending upon how you define it. There is at least 200 billion, maybe much more of revenues. And it is essential in nature — the industry is not going away, right, so that is one.

John: Right.

Scott: Two is that it is extremely fragmented. There are thousands and thousands of companies in the sector. And there are only a handful — less than a dozen, really big billion-dollar companies, right. So, that suggests that there are a lot of small medium-sized companies out there, and a lot of them M and A to be done in consolidating it, right. So, an M and A banker could make a living in the sector.

John: Right.

Scott: That was two. And then, three — like I said, you know, I wanted to be something where I had a passion for — and working with companies — it is working with companies that are keeping the environment clean and safe is very rewarding, right. So, you can, again, you can marry those two concepts, be a successful banker, but you know, it will also be rewarding — and working with — the same time.

John: You know, Scott, you and I have lived through an interesting evolution in the United States. We both were professionals trying to build our practices when Al Gore came out with Inconvenient Truth and won the Academy Award and Nobel Peace Prize. And for a while sustainability seemed like it was really picking up a lot of steam, and we had the advent of the chief sustainability officer role at many organizations. And then, for a while, it seemed like things die down a little bit. But now, we have a new generation of young people — the Greta Thunbergs of the world, and I know you have young children, and my children are all so young, and they seem to have a huge passion for sustainability, and making the world a better and greener place.

How is that rise of the Gore to Greta and onward trend affecting your practice, and do you feel a renewed interest level in environmental services and companies that are truly making an impact and making the world a Greener and better place?

Scott: It is. And it is because the concept of impact investing has become so prevalent over that period of time. And see it through the advents of the now, impact funds, one of the larger private equity funds are developing separate impact funds. We just sold a business earlier this year to TPG, Texas Pacific Group, one of the largest, oldest run equity funds. They have a big practice within that KKR, Goldman, Apollo, they are all developing — these are all the household names in private equity that are developing, you know, impact investing funds and strategies. There are a whole host of other funds out there that were designed just for impact. I forgot Bane. Bane has an impact fund that was started by Deval Patrick.

And my team sold them their first impact investment business called —green waste. And so, between that, and then you have the money going into infrastructure funds where one of the key areas is environmental services. This all adds to a tremendous amount of capital out there — billions and billions of dollars., right. And so, with increasing amount of capital with a finite number of opportunities out there suggests there is a supply and demand imbalance. And so, you know, we have benefited from being able to sell in a lot of companies in that environment. And then, you see valuations increasing because of that imbalance, and because people are increasingly recognizing the value of these businesses. The essential nature, the opportunity to consolidate that I mentioned, the fact that they are relatively recession resistant, right. So, it is a safer place to put capital to work.

There are a variety of reasons, but that is definitely been a trend over that period of time, and there is a short period of time between that initial deal that I did and today, and having — now, built a really large book of deals and portfolio, successful transactions.

John: For our listeners out there, who just joined us where we have Scott Sergeant with us. He is the managing director and head of environmental services at Houlihan Lokey. You can find Scott and Houlihan Lokey at www.hl.com. Scott, I have been lucky enough and honored enough to be invited to some of your great conferences, one as late as the fourth quarter last year in New York City, and it is always a packed house of not only great Houlihan Lokey people, and I do love the culture that you do — that you referenced earlier at your company. Everyone is so — let us just say atypical from traditional Wall Street banking personalities that have been highlighted in movies or on television, or things of that such, and by Hollywood.

Everyone is so nice, but you are always pack the house with so many interesting companies and potential investors as well. I know you have, right now, planned an event for October 1st of this year. Can you share a little bit about with our audience about what you have upcoming this year on October 1st, and why and how you typically arranged your great events?

Scott: Yes. We would love to talk about that. We have our annual business services conference scheduled for October 1st in New York City, the Palace Hotel, the lapels. And it is what we do every year as he said. And the format of these conferences as we have our roster of really high-quality private companies presenting their business to the attendees at the conference. We will have, probably you know, 25 to 30 high quality companies, environmental services is — it is not all of our — environmental services, but in environmental services will have its own roster of companies that are presenting. They present for about a half an hour each, and it is — the conference itself is just very well attended by a pretty diverse group of corporations, executives, private equity investors, hedge funds, lenders, other intermediaries that are involved in the deal world, in some way or another.

And we typically, have 500 or so attendees at this conference. And like you said, it is October 1st this year in New York City, and we hope that ends up being a really ideal time because over the last two months and into the summer, a lot of other events that are being postponed or cancelled. And so, there is a big pent up demand for content like this, and we hope that October, things are back up and running and the city is open and large events are accessible again. There is no doubt that there will be a lot of demand for the content and in getting together and networking, which everybody misses right now.

John: It is always — people totally miss the networking, and the personal contact, and relationship building that — especially, your conferences foster and really make it a great way to see a lot of people in a short period of time — will the information about that conference be residing on HL.com?

Scott: It is. I believe it is there now. So, it is up there. Yes, thank you.

John: You know, Scott, there are a lot of young people that listen to our podcast, so can you do two things? Share some of your favorite sectors if you were to be counseling and mentoring young people that are in grad school or in college or even in high school that want to no longer just go make widgets to make money when they come out of their higher education process, but they actually want to work smart, but also make an impact besides making a living to pay groceries and buy their essential goods. What sectors do you see as growing in hot in the next three to five, maybe seven year period that people can focus on in terms of where they are applying for jobs, and what sectors do you think are going to see growth in the years ahead?

Scott: So, I think, that the key areas will continue to be cleaning up the world, right. It is going to be dealing with air, water, and soil contamination, pollution, right. There is such a — there is like an endless supply of work to be done, and in this country. So, one area that I like a lot, I think, that will continue to be a faster growing area for professionals would be the environmental consulting and engineering space. I think, there is some — if I were going back to school and you are studying engineering or science, that is an area where there will always be a strong demand for talent. And there is just — I think, that the — continue to get higher — in terms of the cleanliness of the air, and the water, and the risk of groundwater contamination, etcetera.

I have worked with enough companies to know that there is a never-ending supply of work to be done around that. And there is so many firms out there that are looking to grow that — grow their businesses and develop their environmental practices even though largest or smallest independent consulting engineering firms. The other thing would be anything around recycling — for those that are innovative and technically oriented. We need better solutions where it is more economical to recycle with the challenges of commodities, the pricing, the cost that we — for some waste streams that we would love to keep out of landfills like food, organic waste streams. It can be — there are municipalities that would otherwise have to steal, maybe subsidize some of these programs to make them work, are finding a hard to do so in this environment.

New York City — they just postponed — put off their organic waste collection effort, you know, that rotate. That was something that, I think, New Yorkers were getting really used to, and now that program is being cut because it is a way in the area to save money. We would hate for that to happen, more broadly, with our waste streams, or for that to happen that in other cities around the country. And so, I guess, the point is that there must be ways to do all this more economically and technologies to be developed. And so, for those that want to get involved in that, I think, there is a big opportunity.

John: Interesting. You know, we are all living through this tragic pandemic right now, Scott. How is that affecting both the banking industry as a whole, but then more specifically, the environmental services industry? Can you share a little bit about your thoughts on what we are all living through together, and how that is affecting banking and your specific specialty right now?

Scott: Well, there is no doubt that with the uncertainty and the volatility in the markets, it is a challenging environment to work or to close M and A — just kind of, traditional M and A. But there is a lot of opportunities on the other side that come out of it from banking perspective. Companies that need help managing through these tough times, whether it is dealing with their creditors, or helping them raise capital through it, improve their liquidity needs. And there will be other forms of M and A through this period too for businesses that make sense to be putting together to make sure that they are stronger.

In this particular sector, environmental services, it is still early days to really see the true impact. The earnings of the public companies are just coming out, the studies that are just coming out that show how businesses are performing, but still largely anecdotal. But the positive is that the government and other agencies have deemed virtually all environmental services companies to be essential. That is the term that we use to describe you as a banker, as I described, a company that was selling now. And so, it is nice to see that that is a special term now that is being applied by the government, which is universally. And so, that has kept most of the businesses, if not all of them running and operating to some extent, if not, virtually not uninterrupted.

Now, not to say that they are not impacted to some degree, right. They need access to a commercial site, or their beneficiaries of collecting commercial ways that are — whatever restaurant and retail. In the facility, you are going to see impact. If there are — if you cannot get onto an industrial site because there has been an outbreak. Obviously, there is going to be temporary delays. Varying degrees of impact, but I think, when we get on the other side of this, you will see that most, if not all environment services companies, will have fared relatively well compared to most businesses out there for sure.

John: That is so interesting because they have been deemed essential over all the sectors relatively healthy and will recover quickly, hopefully. That is interesting. That is interesting. You know, Scott, when I was recreating green is good, which you have appeared on and you were so kind to invite me to your conferences, and many of your portfolio companies or other companies you were covering have appeared on it. The reason why I came up with the name impact is because truly what I see is your environmental services practice — we could really — given the times we live in as you pointed out earlier, all the impact funds that TPG, KKR, Bain, and all these other great banking institutions have created, really what you are also running at Houlihan Lokey is really an impact services practice as well.

I mean, all your companies that you are following or banking, or will be banking later this year and into next year are impact companies. And that is why I named the show impact. So, to me, it is so exciting to have you on because truly, everything that you do in banking, the companies that you support and help and back, and also help sell to move on to a bigger platform are making an impact in making the world a better place. We are down to the last couple minutes. Are there any last thoughts that you would like to share with our listeners before we sign off for the day?

Scott: Well, I guess, I will say one thing just based on what you just said. I totally agree with you that environmental is a key theme amongst the impact. I would say, Houlihan Lokey is as a whole, we have built out a very unique practice where we have dozens of very specific niche focused industry sectors, environmental just happens to be one of those. And there is a — others in the firm recognizes filling out that broader impact theme, right. So, we have folks that work on the relevant consumer products areas, fitness, and healthcare, right. So, there are other areas that I would think, would round out a more wholesome impact theme, not just environmental, but we cover through — all the senior bankers in the firm are dedicated within a specific industry sector like myself. We all are M and A professionals. We kind of lead with that M and A capability or capital raising capability, but we are experts within our respective niches at the same time. So, that is how we built the firm. That is what we think is unique, and the other component, certainly, that are important to you and your impact.

John: And with that, I am going to — we are going to say goodbye for today, Scott. I wanted to share with our listeners again, for those who want to learn more about Scott, and also his great practice and the wonderful company Houlihan Lokey that he works for, you can go to www.hl.com. Also, you could go to www.hl.com to learn more about his upcoming event on October 1st in New York City. He has a great conference every year. It is one of the greatest places to meet, and visit, and get to know all the relevant people in the environmental services and banking industries. And Scott, we are so honored, I am honored to have you as a friend, also as a business colleague. The world is a better place because of you and the impact that you make in all the work that you do professionally and personally. So, thank you again for being on the impact podcasts. Scott Sergeant, you are making the world a better place.

Scott: Thanks a lot, John. Real pleasure.