Canadian waste management company GFL Environmental Inc. has filed to go public, looking to raise US$1.5-billion in a cross-border deal.
If successful, the initial public offering will be one of the largest for a Canadian company in recent years.
GFL has long sought an IPO, but its plans seemed to change in early 2018, when the company brought in new private equity backers, BC Partners and Ontario Teachers’ Pension Plan.
Later in the year, GFL also announced its largest acquisition to date, a $3.65-billion purchase, including debt, of North Carolina-based Waste Industries.
Despite the changes, GFL has decided to forge ahead with its IPO plans, partly driven by hot stock markets in Canada and the United States, as well as by premium valuations for waste management companies.
GFL will sell subordinate voting shares to the public, meaning new investors will not have the same voting rights as some existing owners – a common theme in recent IPOs, particularly for technology companies. After the offering, chief executive officer Patrick Dovigi will hold all of the multiple voting shares, giving him effective control of the company.
However, as long as BC Partners holds at least 15 per cent of the company’s stock, Mr. Dovigi will have to vote in line with the recommendations made by the directors BC has nominated to GFL’s board.
GFL will use the IPO proceeds to repay debt and help fund future acquisitions, according to people familiar with the transaction. The Globe and Mail reported in June that GFL was looking to go public in the fall, and that timeline is still the target. A formal marketing road show is scheduled for September.
Debt repayment is an important issue for GFL because the company has been a serial acquirer of waste management companies across North America for more than a decade. Most of these purchases have been funded, at least in part, by debt, and because GFL has been backed by private equity, deleveraging has not been a focus.
The weight of GFL’s debt burden is reflected in its credit rating. The company issued US$500-million worth of unsecured notes in April and the securities were rated Caa2 by Moody’s Investors Service and CCC+ by Standard and Poor’s – deep in junk rating territory.
The IPO filing also shows that GFL has not reported an annual net profit in the past three years – and interest costs have been a major factor. GFL lost $611-million in fiscal 2018.
However, the company’s profit outlook is tough to gauge because of a number of one-time items, including $104-million in professional fees and other transaction costs related to its recapitalization in May, 2018. After adjusting for one-time items, GFL had earnings before interest, taxes, depreciation and amortization of $659-million in fiscal 2018.
GFL, which stands for “green for life,” is now the fourth-largest solid waste management company in North America, and much of its growth has come from acquiring small waste-management companies that have long-term contracts.
Founded in 2007 by Mr. Dovigi, GFL gained prominence in 2011 by winning a $186-million garbage contract with the City of Toronto. The company now has sizable operations in both Canada and the United States. After the IPO, its shares will be listed in Toronto and New York.
Seventy-seven per cent of GFL’s 2018 revenue came from solid waste management services, such as municipal and commercial waste collection, while its infrastructure and soil remediation arm delivered 15 per cent of its revenues. Just over half of GFL’s revenues come from Canada.
BMO Nesbitt Burns, Goldman Sachs Canada, J.P. Morgan Securities Canada, RBC Dominion Securities, and Scotia Capital are serving as underwriters for the IPO.
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