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Waste management giant GFL hires financial advisor to review two acquisition offers: source
A consortium of infrastructure funds and sovereign wealth funds have come together in a bid to share the cost of GFL’s $17.8 billion valuation, a source told The Globe and Mail
Toronto-based waste management company GFL Environmental Inc. GFL-T has hired JP Morgan to evaluate two acquisition offers — one for the entire business and another for its environmental services division, according to a source familiar with the matter.
As of Tuesday’s market close, GFL is valued at $17.8 billion. To share the costs, a consortium of infrastructure funds and sovereign wealth funds have come together in an offer, according to the source, but discussions are in preliminary stages and may not lead to a transaction.
Another option is for GFL to sell its environmental services division, which offers liquid waste management and soil remediation services, and use the profits to pay down debt or buy back shares. The bidder offered to pay about 15 times the unit’s earnings before interest, taxes, depreciation and amortization, or EBITDA. In 2023, the unit reported adjusted EBITDA of US$383 million.
The Globe and Mail is not identifying the source because it is not authorized to discuss the information publicly. GFL declined to comment.
GFL, which has lost $2.2 billion since the start of 2020, has become vulnerable to takeover bids in recent months as its shares were sold due to concerns about its debt load. The company has grown through debt-fueled acquisitions, and growing expectations that higher interest rates will remain in the United States, where GFL issues most of its debt, have investors concerned about borrowing costs and the potential to finance future acquisitions.
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In March, ratings agency Moody’s Investors Service affirmed GFL’s debt rating at B1, which is considered junk, noting that the company’s adjusted debt has fluctuated between five and 5.5 times its EBITDA since going public in March. 2020. Moody’s also noted that GFL’s debt repayment plans have slowed, with the total charge standing at 5.2 times EBITDA, compared to expectations of around 4.6 times in fiscal 2020. 2023.
As GFL shares traded lower, the company lost its premium valuation relative to rivals, which trade at around 15 times EBITDA. Before news of a potential transaction was reported by Connecticut-based financial news and data portal CTFN on Monday, GFL was trading at about 10 times adjusted EBITDA. Since then, its shares have risen 18%.
Private equity and infrastructure funds are flush with cash and have been looking for discounted investment opportunities. In a note to clients on Tuesday, Jefferies analyst Stephanie Moore wrote that GFL has steady cash flows that make it attractive to private owners — adding that the company already has a history of private equity ownership.
Before going public in 2020, GFL was privately owned by British private equity firm BC Partners, Ontario Teachers’ Pension Plan and founder Patrick Dovigi of Sault Ste. Maria. BC Partners is still GFL’s largest shareholder and has two seats on its board of directors.
However, a private takeover would likely involve adding even more debt to the balance sheet that is already loaded with it. While it would be possible to manage more leverage, this would leave the new owners little room for error.
A deal to sell just the environmental services division, then, may be more palatable. In his note, Moore predicted that the proceeds could be used to immediately reduce debt in order to reduce GFL’s debt-to-EBITDA ratio to the two-times range, and any additional proceeds could be used to repurchase shares. .
The Globe and the Mail