GFL Environmental Inc. has lost $2.2-billion since the start of 2020.CARLOS OSORIO/Reuters
Toronto-based waste management company GFL Environmental Inc. GFL-T has retained J.P. Morgan to assess two buyout 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 split the cost, a consortium of infrastructure funds and sovereign wealth funds have teamed up on a bid, 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 proceeds to pay down debt or repurchase shares. The bidder has offered to pay roughly 15 times the unit’s earnings before interest, taxes, depreciation and amortization, or EBITDA. In 2023, the unit reported adjusted EBITDA of $383-million.
The Globe and Mail is not identifying the source because they are 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 buyout offers in recent months because its shares sold off amid concerns about its debt load. The company has grown through debt-fuelled acquisitions, and the growing expectation that higher interest rates will remain in the United States, where GFL issues most of its debt, had investors worried about borrowing costs and the potential to fund future acquisitions.
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In March, rating agency Moody’s Investors Service affirmed GFL’s debt rating at B1, which is deemed junk status, noting that the company’s adjusted debt has hovered between five and 5.5 times its EBITDA since going public in March, 2020. Moody’s also noted that GFL’s plans to pay down debt had slowed, with the total burden sitting at 5.2 times EBTIDA, compared with expectations of around 4.6 times in fiscal 2023.
Because GFL’s shares traded down, the company lost its premium valuation relative to rivals, which trade 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 around 10 times adjusted EBITDA. Its shares have since surged 18 per cent.
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 controlled by British private equity firm BC Partners, Ontario Teachers’ Pension Plan and founder Patrick Dovigi. BC Partners is still GFL’s largest shareholder has two seats on its board of directors.
However, a private buyout would likely involve adding even more debt to balance sheet that is already loaded with it. While more leverage could be managed, it would leave the new owners with little room for error.
A deal to sell only the environmental services division, then, may be more palatable. In her note, Ms. Moore predicted the proceeds could be used to immediately reduce debt to bring GFL’s debt-to-EBITDA ratio down to the two-times-range, and any additional proceeds could be used to buy back stock.