GFL Environmental CEO Patrick Dovigi, second from left, rings a ceremonial bell on the floor of the New York Stock Exchange on March 4, 2020.Richard Drew/The Associated Press
Fresh off the transformative sale of its environmental services division, Canadian waste management giant GFL Environmental Inc. GFL-T says it will reignite its acquisition streak after spending 18 months focused on paying down debt.
GFL is also reworking its board of directors after the representative from its second-largest shareholder, Ontario Teachers’ Pension Plan, stepped down. Blake Sumler, Teachers’ senior managing director of industrials, has sat on GFL’s board since the pension fund invested in the company in 2018.
On a conference call Tuesday, GFL chief financial officer Luke Pelosi said paying down debt “allows for the reignition of our M&A strategies that have been tempered over the past 18 months,” adding that the deal pipeline “remains robust.”
From its founding, GFL has been a serial acquirer, borrowing money to fund purchases of smaller rivals. This acquisitive bent is a key reason its operating cash flow grew so quickly over the years – and it’s also been a major driver of GFL’s persistent losses because substantial interest costs eat into its bottom line.
Interest expense on this debt became a concern for investors in mid-2023 after soaring inflation forced central banks to hike interest rates, and the company’s share price started to slide. In response, GFL promised to cool its acquisition spree, as well as sell some assets to help pay down debt.
In January, GFL went so far as to announce the sale of its environmental services division, which delivers about 20 per cent of its revenue and offers liquid waste management and soil remediation. The deal, which closes early in March, will deliver $6.2-billion in cash proceeds that GFL can use to pay down its heavy debt load, which is currently worth $10-billion.
The question for GFL is whether it will commit to keeping its total debt at a lower level as it goes back out and buys more companies. When the company started selling assets in 2023, its debt load fell by almost $2-billion but then climbed higher again.
Mr. Pelosi told analysts on the conference call that new acquisitions can be made “without having a significant impact on leverage,” because the company can fund them through annual cash flows.
GFL is also setting aside $2.25-billion of the deal proceeds to buy back shares – both from public market investors and from its long-standing backers. The backers include BC Partners, Teachers, and GIC, which is Singapore’s sovereign wealth fund. BC and Teachers have been expected to sell at least some of their stakes back to GFL, and GFL CEO Patrick Dovigi has mentioned in recent months that they may give up their board seats.
For that reason, Teachers’ decision to relinquish its own board seat is not a major surprise. However, it did come before the fund has sold its shares, and follows Teachers’ decision to vote against Mr. Dovigi’s $68-million pay package last year.
In a statement to The Globe, Teachers’ spokesperson Dan Madge said the fund has been a proud shareholder since 2018, but the size of its stake has been falling over the years, “which is why now was an appropriate time for us to step down from the GFL board. We currently hold a position in GFL and believe the company will continue to build on its success.”
GFL’s shares fell 4 per cent on the Toronto Stock Exchange on Tuesday after the company reported its full-year earnings. The company lost $737-million last year, which included a loss on the sale of one of its U.S. businesses. After stripping out a number of items like that, the company reported adjusted earnings before interest, taxes, depreciation and amortization of $2.25-billion in 2024.
Because GFL now generates substantial revenue in the United States, the company was asked if it was considering redomiciling south of the border. (It is currently headquartered in Vaughan, Ont., just north of Toronto.) Mr. Dovigi said his team is looking into it, but as it stands, he’s more focused on staying in Canada where GFL is likely to soon qualify for inclusion in the S&P/TSX 60 index.