Analysis of Perma-Fix Environmental Services, Inc

Perma-Fix Environmental Services, Inc. (“Perma-Fix”) (PESI) incorporated in 1990, is a nuclear services company and leading provider of nuclear waste management services serving clients throughout the United States (“US”) and in parts of the United Kingdom (“UK”). The company is based in Atlanta, Georgia with six waste treatment and process facilities across the US and one in the UK.

Perma-Fix significantly grew its revenues, after tax Return on Equity (“ROE”) and its profit margins between 2008 and 2011. The sector in which the company operates Industrial Goods, the Industry is Materials & Construction, the Sub-Industry is Waste Management and the North American Industry Classification (“NAICS”) is Other Waste Collection (#562119) and the Standard Industry Classification (“SIC”) is Refuse Systems (#4953). The market structure of the industry is an oligopoly.Background The Company Perma-Fix Environmental Services, Inc.

(“Perma-Fix”) (PESI) incorporated in 1990, is a nuclear services company and leading provider of nuclear waste management services serving clients throughout the United States (“US”) with respect to nuclear waste services including management and treatment of radioactive and mixed waste for hospitals, research labs and institutions, Departments of Energy and Defense as well the commercial nuclear industry (Perma-Fix Corporate website).The company is based in Atlanta, Georgia with six waste treatment and process facilities across the US. Perma-Fix has three major business segments: Nuclear Waste Management Services, Consulting Engineering Services and Industrial Waste Services. The organizations core competency is innovation and technology based on proprietary systems, Perma-Fix Process and Perma-Fix II.Perma-Fix grew its revenues from $75504 (2008) to $118610 (2011), its after tax Return on Equity (“ROE”) from 3% (2008) to 15% (2011) and its profit margins from 3% (2008) to 12% (2011).

The company has also grown its International presence through acquisition, specifically opening up its channel into the United Kingdom (“UK”) in 2011. The company discontinued several branch operations in the US in years 1998, 2004, 2005, 2008 and sold off another business unit in 2011 with Board approval. Industry and StructureThe sector in which the company operates Industrial Goods, the Industry is Materials & Construction, the Sub-Industry is Waste Management and the North American Industry Classification (“NAICS”) is Other Waste Collection (#562119) and the Standard Industry Classification (“SIC”) is Refuse Systems (#4953). The two largest segments are municipal solid which consists of non-hazardous garbage disposed of by homes, businesses and government and the second is hazardous waste includes liquid and solid materials that are toxic or radioactive generated from nuclear and government activities, mining and milling operations as well as chemical, medical and the oil and gas industry.

The market structure of the industry is a homogeneous oligopoly; “A market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically nonprice competition” (McConnell, p. G-20). There are a number of competitors in the industry, however only a handful of major competitors for Perma-Fix.The company has identified two major competitors: EnergySolutions (“ES”) based in Utah and Waste Control Specialists (“WCS”) located in Texas; the company also identifies several smaller competitors but doesn’t see them as a threat at this time.

Operating in this oligopolistic environment impacts the firm’s ability to price as they must be aware of what their rivals are doing and how they will be able to stay competitive. “Because rivals are few, there is mutual interdependence: a situation in which each firm’s profit depends not just on its own price and sales strategies but also on those of the other firms in its highly concentrated industry” (McConnell, p. 224). AnalysisLegal and Regulatory The industry is heavily regulated involving extensive and evolving laws and regulations and are “… subject to extensive and evolving environmental laws and regulations by a number of national, state and local environmental, safety and health agencies, the principal of which being the Environmental Protection Agency (“EPA”) (Perma-Fix SEC Filing document, p. 7).

The Acts that the organization is subject to are: the Resource Conservation and Recovery Act of 1976 (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), Occupational Health and Safety Act (“OH&S”), Atomic Energy Act and various others such as Clean Water Act, Clean Air Act, Hazardous Materials Act and Toxic Substances Act (Perma-Fix SEC Filing document, p. 8). If the organization is not well versed and compliant, there is a strong possibility of fines and penalties as well as other measures commensurate with the offence.Due to the complexity of the industry, there is cooperation between government, industry and industry professionals together to find viable and sustainable solutions.

The past 10 years in the hazardous waste disposal industry from an environmental regulatory perspective has seen great change as well as change in the works. The introduction and amendments to current regulatory and legal compliance requirement has meant that Perma-Fix must have a dynamic structure that is forward thinking and responsive to serve the clients all the while remaining compliant. In essence, the organization that is best equipped to rapidly deal with the changes at a superior technical as well as a disposal level, will have the competitive edge. Impact of Government PolicyThe hazardous waste disposal is a highly competitive industry.

While there are barriers to entry such as various regulatory, legal and licensing requirements, it is not so restrictive as to not have a consist stream of new entrants. Part of the appeal of the industry is increased regulations imposed on clients in an effort to protect the environment. This makes the industry highly appealing as it is just beginning to get traction and will see significant growth in the upcoming years. In essence, the regulations create barriers to entry while at the same time creating a competitive environment conducive to fostering high growth both domestically and internationally.Monetary policy impacts the economy and its impact will be reflected in real Gross Domestic Product (“GDP”), levels of investment, demand and prices. A change in interest rates will either stimulate or retract investment activities of firms, individuals and governments.

Perma-Fix saw a decline in investment with a strong dip in 2009 and has been in a somewhat steady recovery to date. This increase can be attributed to a combination on monetary policy and increased regulatory and compliance issues. Global Economic EnvironmentsThe instability in the market is felt in every industry. The US attempting to stimulate the economy using various tools such as monetary policy will ultimately be impacted by the policies of other Nations in the global economy. The increase in technology, distribution channels and increased, rapid, diffusion of information assists in the market responding much quicker than in past decades.

“We cannot leave the world behind. We are enmeshed in a global web of economic relationships, such as the trading of good and services, multinational corporations, coorperative ventures among the world’s firms, and tied among the world’s financial markets” (McConnell, p. coi1-1). Perma-Fix, operating in the US in various states, is subject to competitive forces Nationally as well as within each state; add to this mix its International competitive environment in the UK.

The competitive labor market in each country as well as province and state impacts the organization on various levels.Perma-Fix is reliant on skilled labor and at the mercy of a bid process for their largest contracts. If the organization loses a bid or key staff, the impact is great and it is felt organization wide. Because of the scarcity of both of these, contracts and labor, the organization must mitigate the impact through internal policies, incentives and structures.

For example, the organization cannot afford to lose a key member of its labor pool as it may impact the award of a big contract. Equally the same, the competition is at the mercy of this force as well. The introduction of various free trade agreements has impacted the flow of labor, capital and made it easier for outmigration in many forms which brings up other issues.The policies set up to encourage international trade have impacted the Nation.

This can be seen in the increase of unemployment and the decrease in wages to remain competitive. Yes, on a macroeconomic level the Nation is seeing increased stability, but on a microeconomic level the Nation continues to be impacted adversely. There is an argument to put forward a protectionist ideology, however operating under the conditions of globalization it doesn’t seem to be realistic. ConclusionsThe long term outlook for Perma-Fix is not as good as other options. The organization is operating in a competitive industry where margins are tight and the labor pool is high skill, of which there is a shortage.

They are at the mercy of a bid process and a tight labor market and the loss of one or the other can result in a loss of profitability and ultimately the organization. Due to these factors, the organization is in a position to acquire smaller firms to gain market share and compete against the top two organizations they are in head to head competition with for contracts, people and technology.