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Report On Business GFL Environmental dumps its rumoured IPO, finds new private-equity backers

Canadian waste management giant GFL Environmental Inc. has secured new private equity backing, dumping the idea of a public market launch in favour of a growth strategy funded by financial partners including the Ontario Teachers’ Pension Plan.

Toronto-based GFL struck an agreement with private equity firm BC Partners, based in Britain, and Teachers over the weekend, bringing on the firms as its new principal shareholders. The terms of the agreement are not being disclosed, but the recapitalization attributes an enterprise value of $5.13-billion to GFL’s business, according to founder and chief executive officer Patrick Dovigi, who also maintains a large stake in the business.

GFL, which stands for “green for life,” is known for its neon green trucks that collect, transport and dispose of solid and liquid waste matter, as well as performing soil remediation and other infrastructure-related work. The company has been a voracious acquirer of other waste and environmental solutions businesses since its founding in 2007, and now has a wide network of more than 140 facilities across Canada and in Michigan.

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“Our plan is to continue our expansion through various parts of the United States, and continue focusing on densification in the other parts of Canada that we currently aren’t servicing today,” Mr. Dovigi said.

GFL head Patrick Dovigi at a waste transfer station in Toronto.

Mike Ford/Mike Ford

The deal allows the company’s largest stakeholders, U.S. private equity firm HPS Investment Partners LLC and Australia’s Macquarie Infrastructure Partners III, to exit their investment in the business at a time when Mr. Dovigi sees the potential to add new service offerings and broaden GFL’s footprint.

GFL has municipal contracts to provide local waste collection service to more than 2.5 million households in Canada and Michigan, as well as serving more than 80,000 industrial, commercial and institutional customers. But the company is stronger in some provinces than others. It has dozens of facilities in Ontario and Quebec, but only a smattering in Saskatchewan and Manitoba.

“With the amount of infrastructure dollars that are being spent in Canada and the U.S., we see that as a big opportunity to expand our soil and infrastructure business,” Mr. Dovigi said.

Mr. Dovigi initially worked in corporate finance doing due diligence on environmental-services companies. He then decided to get into the business himself, launching GFL with eight employees. In the past decade, the business has grown to more than 5,500 staff and produces more than $1.7-billion in annual revenue.

In recent months, rumours swirled that GFL was pursuing an initial public offering of shares worth about $1-billion. But the idea of GFL going public appeared to hit a bump in February when credit-rating agency Moody’s Investors Service changed its outlook to negative from stable, after the company issued US$400-million worth of new debt. The burden of the company’s debt had climbed to 6.4 times its earnings before interest, taxes, depreciation and amortization, and that worried Moody’s because GFL’s ongoing hunt for acquisitions was largely funded through debt issuance.

Mr. Dovigi said GFL had always been mulling all of its options to secure new investors by running a dual-track process, which is an increasingly common strategy where both an initial public offering and a sale of the business to private capital are considered.

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“From my perspective, just given the amount of additional equity capital available to us through these two partners and their investors, this was the better option for us so we can stay private and focus on the business,” Mr. Dovigi said, adding that an IPO would have meant new costs, disclosure and investor demands, making it harder to create value at this time. GFL plans to maintain the same leverage levels and capital structure, Mr. Dovigi said, but he added that new equity capital would be available for transactions in the future through the new partners

Mr. Dovigi was also won over by the values and vision of the teams at both BC Partners and Teachers. After meeting them, he inquired if the two firms would consider partnering on the deal. BC Partners and Teachers have secured several acquisitions together in the past, including the recent purchase of CeramTec Group, maker of ceramic components and parts, and found that they were once again aligned on the opportunities at GFL.

“Both us and [Teachers] are long-term investors; we invest in growth,” said Paolo Notarnicola, a senior partner at BC Partners. “And in this case, it’s a unique opportunity to really find a Canadian champion – we have, for the past couple of years, really focused quite a bit on Canada.”

Mr. Notarnicola said BC Partners would look to invest further in GFL’s business, not only by way of acquisitions as the waste industry continues to consolidate, but also in terms of new investments in technology and customer-service measures.

GFL is not alone in its efforts to buy up businesses in the waste space. In March, Calgary’s energy-industry waste company Tervita Corp. gained a long-sought public listing through a reverse takeover of Newalta Corp., which also has an oil and gas focus.

Mr. Dovigi says GFL isn’t ruling out a future IPO, and he expects to reconsider a public listing in the years to come.

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“I always tell people we’re in the second inning of a long baseball game here,” he said. “We’re really excited about the next 10 years.”

Editor’s note: An earlier version of this story incorrectly said the deal for GFL had an equity value of $5.13-billion. In fact, that is the enterprise value of the business, which includes debt and other adjustments.
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