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Export Regulations Consolidation, Drop in Service Providers Predicted for Saturated Shred Industry

By P.J. Heller
The maturity of the document destruction industry in the United States has resulted in a saturated market where any new entrants will find it tough going and existing companies will likely grow their businesses faster in the future through acquisitions and mergers, according to one industry veteran.

“I don’t believe you’re going to see a lot of new document destruction services entering the industry in North America,” says Bob Johnson, chief executive officer at the National Association for Information Destruction (NAID).

“I think we’re actually going in the other direction. I think we’re going into a cycle where there will be consolidation and reduction in capacity in North America.

“There will be an occasional new entrant into the business,” he adds, “but it’s not going to be anything like we’ve seen in the past. For the most part, there will be a consolidation and actual shrinkage of service providers.”

Such a scenario comes after more than a decade of increased demand and major acquisitions and mergers, among them Iron Mountain and Recall Holdings and the Cintas, Shred-It and Stericycle transactions.

Consolidation and a reduction in the number of service providers — some of whom may fall by the wayside due to linking their prices for services to the value of recycled paper which has fallen sharply — will lead to a healthier environment for the industry, Johnson predicts.

The demand for document destruction services has pretty much reached its peak, according to Johnson. That’s not to say every business that needs paper shredding is outsourcing its document destruction services. Consolidation, Drop in Service Providers Predicted for Saturated Shred Industry For those that aren’t, he says, “I’m not so sure that anything is really going to push them to outsource if they’re not doing it already. It’s not like there’s a lot of virgin territory out there for our industry to grow into.”

Johnson estimates that the document destruction market is 75 percent to 80 percent vended, but quickly adds that using such figures is a misnomer.

“I’m pretty confident anecdotally that it’s true,” he says. “But it’s a misnomer because it indicates that 20 percent to 25 percent is left to grow into. My point is I don’t think we can ever get that 20 or 25 percent. Should we be saying it’s more like 100 percent vended? If you can’t get the other 20 or 25 percent, is it really there to get? You can say it’s not vended but it will never be vended.”

Asked if he felt the market was saturated, Johnson replied, “I do. I do.

“We are very close in North America to what I would say is a situation where most of the companies that would need our services are using them already. I think we have saturated our market to a large degree. I think there are enough competitors in the market for the demand. Where we saw demand increasing wildly over the last 12 years, we’re not going to see that demand increasing wildly anymore.”

Despite that, NAID has seen its membership grow. The organization has more than 1,900 member locations.

“We’re growing as fast as we’ve ever grown in our history right now,” Johnson reports. “It’s not from new people getting in the marketplace. It‘s from existing companies who are in the business joining finally after all these years.”

A big part of that may be due to the demand from companies who are outsourcing their document shredding services wanting to ensure that their vendors are NAID members or NAID certified. The NAID certification program, which is voluntary, verifies the qualifications of certified information destruction providers through a comprehensive scheduled and unannounced audit program.

“They’re looking for someone with the proper qualifications,” Johnson says of businesses outsourcing their document destruction. “That also makes it more difficult for the new [shredding company] guy to get in. That favors companies that are doing it the right way. It doesn’t make it so easy for just anyone to hang out their shingle and get business.”

Some of NAID’s growth is also coming from companies in the electronics destruction industry and from overseas, Johnson says. That growth is expected to continue even if traditional paper shredding company membership declines over the years.

Unlike the U.S., shred companies overseas are seeing greater demand and opportunities, Johnson says. One example he cites is Japan, where he recently gave a speech, noting that the country is a “spittin’ image” of where the U.S. shredding market was 20 years ago.

NAID is also helping to fund creation of a medical waste management association, which will be a totally separate organization. It was being supported at the behest of NAID members who were moving into hauling medical waste.

“They came to us and said they wanted an association to do for them what NAID did for the secure document destruction industry and asked NAID to help get it started,” Johnson says.

For the American document destruction market, Johnson says shredding companies seeking to grow in a saturated market may find that business acquisitions are the way to go.

“I don’t think you have to be a business guru to see that if they want to grow in a market where you’ve got pretty good saturation . . . they can’t grow by getting new customers,” he says. “They could take customers away from other people. But one of the quickest ways for them to grow is to acquire companies. I think you will see a fresh appetite by the large companies to acquire other companies as a way to grow. It’s going to be a faster way to grow than to go out and get new customers.”

That could bode well for small document destruction companies, who might see some of their similar-size competitors gobbled up by large national organizations such as Shred-It or Iron Mountain with whom they may already compete.

“If a large company acquires three or four of my competitors, it doesn’t make my life any tougher. In fact, it makes it easier because now I have less competition,” Johnson explains. “I’m not facing new competition. I’m actually facing less competition.”

Competition from the larger national and regional businesses is something small shred companies have been facing for years and “they’ve been able to survive,” he notes.

”Because they [small businesses] are more nimble and responsive in their marketplaces, they often feel they do better against the large competitors rather than the small guys. So they might be better off if three guys get bought out and now they’re competing with a national company,” he says.

Johnson also downplays the impact that medical waste-management firm Stericycle will have on the industry with its acquisition of Shred-It from business services provider Cintas Corp. That’s because the healthcare industry only accounts for about 15 percent of the document destruction industry, he estimates.

“It’s hard to see how the synergy that they’re getting in the medical industry waste industry is going to have any kind of dramatic impact on the document destruction industry. Even if that synergy exists, it only affects a small percentage of the overall market for destruction services.”

While Johnson didn’t want to speculate on other mergers or acquisitions in the near future, he admits “nothing would surprise me.

“There aren’t many big companies to merge,” he notes. “. . . I don’t expect anything major in the next few years other than large companies will be back on the acquisition trail once they have fully digested and integrated all of the changes they’ve got going on now.”

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