GFL will use up to $3.75-billion of the cash proceeds to pay down its $9.5-billion debt load, and will use the remaining $2.25-billion for share repurchases, and general corporate purposes. GFL garbage trucks collect recycling and kitchen waste on Dec 5, 2024.Fred Lum/The Globe and Mail
Canadian waste management giant GFL Environmental Inc. is selling a majority stake in its environmental services to two private equity firms, Apollo Global Management and BC Partners, delivering $6.2-billion in cash proceeds that can be used to pay down its heavy debt load.
GFL’s environmental services division offers liquid waste management and soil remediation services, among other things, and the company launched an auction for the division in mid-2024.
The business is appealing to private equity buyers because it has predictable revenues and can be considered an infrastructure asset. GFL itself expanded under multiple rounds of private equity owners, including Ontario Teachers’ Pension Plan, before going public in March, 2020.
The deal ascribes an $8-billion enterprise value to GFL’s environmental services divisions, and after the deal closes Apollo and BC Partners will each own 28-per-cent stakes in it, and GFL will hold the remaining 44 per cent. GFL values its equity stake at $1.7-billion.
GFL will use up to $3.75-billion of the cash proceeds to pay down its $9.5-billion debt load, and will use the remaining $2.25-billion for share repurchases, and general corporate purposes. Apollo is a new business partner for GFL, while BC Partners is already GFL’s largest shareholder – and therefore already has some ownership of the division.
Under the terms of the transaction, GFL has the option, but not an obligation, to repurchase the environmental services business within five years.
GFL put the division up for auction after investors grew nervous about its debt load. The company’s share price struggled in early 2024 because higher interest rates made GFL’s interest costs more expensive, and as GFL’s share price fell, the company lost a premium market valuation relative to its large U.S.-based competitors.
GFL borrowed heavily because the company has grown through debt-fuelled acquisitions since its founding in 2007. With interest rates expected to remain higher for longer in the United States, where the company issues a lot of its debt, investors have worried about borrowing costs and the potential to fund future acquisitions. The company has lost $2.5-billion since the start of 2020, in large part because of interest expenses.
Amid these concerns, The Globe reported in June that GFL hired a financial adviser to consider both a full-blown privatization of the company and the sale of its environmental services division. Two months later, in August, chief executive officer Patrick Dovigi ruled out a sale of the whole company but said the environmental services sale was still on the table and proceeds could be used to pay down debt.
As GFL’s executives worked to complete a sale, the company dealt with unusual violence at multiple work sites and executives’ homes. Starting in June, GFL faced a series of suspected arson attacks against its properties and equipment, and in early fall the homes of two executives tied to GFL were hit by bullets in what police have described as a targeted attack.
A few weeks later, in late October, a GFL office building in north Toronto was hit with a barrage of bullets overnight. In all, police said 10 bullets were fired. No injuries were reported in any of the incidents.
GFL, based in Vaughan, Ont., addressed the violence on a quarterly conference call in November, with Mr. Dovigi telling analysts and investors the company is co-operating with police and adding that the “incidents are not going to derail or distract us.”
GFL’s shares fell 2.1 per cent on Monday to close at $63.09, giving the company a market value of $24.8-billion. The stock price is up 42 per cent over the last year.