Heckmann: Buying the Jockey and Loving the Horse

Feb.28.11 | About: Nuverra Environmental (NES)

When putting my capital at risk one of the main factors I look at it is the management of the company in which I plan on investing. The quality and experience of management is often overlooked by investors. However, as history has shown, poor management can often wreck a great company that has a new product or a competitive marketplace advantage. Conversely an outstanding management team that has a history of serial success can often turn a poorly run marginal business into a worthwhile investment. In some unique cases the repeated success of a manager or management team will allow the team to easily raise capital and build a company on spec.

This is the case with Heckmann Corporation (HEK). The company was formed back in November 2008 as a "blank check development stage company" and raised a bit over four hundred million dollars. The company stated in its initial 10-K that it’s "efforts in identifying a prospective target business will not be limited to a particular industry or geographic region. Instead we intend to focus on various industries and target businesses that capitalize on growth in the global economy." The company also stated that it was going to "seek to capitalize on the significant acquisition, governance and corporate formation experience of our Chairman and Chief Executive Officer, Richard J. Heckmann."

At this point it is good idea to expand on Mr. Heckmann’s career history and his success in building companies and creating wealth for shareholders. Previous to becoming involved in Heckmann Corp. Mr. Heckmann was the CEO of K2 Corporation. When Mr. Heckmann joined K2 it was in workout status and during his tenure Mr. Heckmann oversaw a more than doubling in revenue and tripled net income. While he was the CEO of K2 Mr. Heckmann consummated 20 acquisitions, the largest of which was $150 million. K2 Corp. was eventually purchased by Jarden Corporation (NYSE:JAH) in August of 2007. Prior to his tenure at K2 Mr. Heckmann founded U.S. Filter Corporation in 1990 and served as it’s CEO. While he was at U.S. Filter the company was involved in over 150 acquisitions ranging up to $1.7 billion in value. What we are buying when we purchase Heckmann stock is a long term call on Richard Heckmann’s ability to identify, acquire, and manage various businesses that the company will acquire.

Since the offering the company has entered into two businesses. The first business which was acquired, on 30 October 2008, is China Water and Drinks (OTC:CWDK). This company produces bolted water and other non-carbonated drinks in the Peoples Republic of China. The company lists Coca-Cola China (NYSE:KO) as one of its major customers accounting for over 50% revenue. The other business that was created through a series of acquisitions is Heckmann Water Resources and Heckmann Water Solutions. These domestic companies are engaged in the business of gathering, treating, transporting, and disposing of saltwater, frac water, and other liquid waste products from oil and gas drilling.

This business is located in some of the more prolific oil and gas producing areas of the U.S. such as the Eagleford, Marcellus and Haynesville shales. On December 1, 2010 the company announced the acquisition of Complete Vacuum and Rental, a private oilfield produced water disposal and transport company based in Carthage, Texas. With this acquisition Heckmann Corp. became one of the largest handlers of produced water in the U.S. Mr. Heckmann appeared on Bloomberg’s "Taking Stock" with Pim Foxx and provided a good overview of the potential of the produced water business in the U.S. and alluded to the possibility of spinning off or selling the China Water business. I would also note that currently the company has zero debt and approximately $200 million of cash on its balance sheet.

In conclusion Heckmann Corp. is a broad way to play the shale gas boom in the U.S. while hitching your investing wagon to a serially successful operator like Richard Heckmann. He has built successful companies in the past and I am willing to speculate on his ability to do it one more time. Full disclosure; I do not currently own shares in Heckmann Corp.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HEK over the next 72 hours.