GFL Environmental has entered into an agreement to divest a majority stake in its environmental services arm to funds managed by affiliates of Apollo Global Management and BC Partners in an impressive transaction valued at 8 billion Canadian dollars, equating to approximately $5.59 billion. This strategic move is significant for GFL, a leading waste management company based in Canada, as it anticipates generating cash proceeds of around CA$6.2 billion after accounting for retained equity and taxes from this deal.
The company has outlined its plans to utilize up to CA$3.75 billion of the proceeds to repay outstanding debts, while reserving up to CA$2.25 billion for share repurchases, signaling a robust approach to strengthen its balance sheet. GFL's Chief Executive Officer, Patrick Dovigi, emphasized the importance of this transaction in a statement issued on Tuesday.
He noted, "The transaction will allow us to materially de-lever our balance sheet which will accelerate our path to an investment-grade credit rating." Dovigi further explained that achieving a deleveraged balance sheet would furnish GFL with the ultimate financial flexibility required to deploy additional capital into organic growth initiatives and to engage in mergers and acquisitions within the solid waste sector, ultimately allowing for higher returns of capital to shareholders through targeted share repurchases and dividend increases. This transaction, which is set to conclude without any financing conditions, is anticipated to finalize in the first quarter of this year.
Following the announcement, GFL’s shares, trading on the New York Stock Exchange, experienced a premarket surge of 2.8%. Post-transaction, GFL will maintain a significant equity interest of 44%—valued at CA$1.7 billion—in the business, while Apollo and BC Partners will each acquire a 28% stake, according to the company's statement.
Dovigi also mentioned that GFL retains the option to repurchase the business within five years following the completion of the deal. In terms of financial implications, GFL expects the arrangement to decrease its annualized cash interest expenses by roughly $200 million due to anticipated debt repayments.
Dovigi noted that this would "significantly" enhance the company's free cash flow conversion. Commenting on the transaction, Apollo Partner Craig Horton stated, "We believe this transaction will provide the environmental services business with greater flexibility to pursue organic and inorganic growth opportunities as an independent business.
We eagerly anticipate collaborating with the talented management team at GFL, as well as BC Partners, to accelerate growth and foster value creation." GFL is poised to disclose further details regarding the financial ramifications of this transaction in its full-year 2024 results, coinciding with its investor day scheduled for February.
Reflecting on the potential for growth within this business unit, BC Partners Partner Paolo Notarnicola remarked, "We are excited about the growth potential of this business, which is best placed to capitalize on the significant consolidation opportunity in the environmental services industry, including further expansion in the US.".