Canadian waste management company GFL Environmental Inc. has officially launched its initial public offering, looking to raise as much as US$2.4-billion in one of Canada’s largest-ever IPOs.
GFL originally filed the paperwork for its IPO in July with plans to sell US$1.5-billion worth of shares to public investors in the United States and Canada in the fall. On Wednesday, GFL announced that the marketing for this share sale has commenced, and gave a price range for the offering.
The company said it will market as many as 100.7 million shares at US$20 to $24 each.
Canada has seen few IPOs of this size. Ottawa's sale of Canadian National Railway in 1995 netted $2.2-billion, while Manulife Financial Corp. raised $2.5-billion through its IPO in 1999.
GFL is selling into a hot market for waste companies, with major rivals Republic Services Inc., Waste Management Inc. and Waste Connections Inc. trading at an average of 33 times their earnings per share for the past 12 months. Anything over 15 to 20 times earnings is considered unusual.
However, GFL has yet to demonstrate its profit potential. Over its past three fiscal years, the company has lost a cumulative $737-million, and in the first six months of fiscal 2019, the company lost $161-million, according to a regulatory filing from GFL on Wednesday.
GFL has talked about going public as far back as 2017. But its plans seemed to change in early 2018, after BC Partners and Ontario Teachers’ Pension Plan bought it from its previous private equity backers.
A few months later, GFL announced its largest acquisition to date, buying North Carolina-based Waste Industries for $3.65-billion, including debt.
The company’s balance sheet is now loaded with debt – both from the 2018 deals, and from borrowing to help fund acquisitions over the years. In April, the company issued US$500-million worth of unsecured notes, and the securities were rated Caa2 by Moody’s Investors Service and CCC+ by Standard & Poor’s – deep in junk rating territory.
GFL intends to use some IPO proceeds to reduce its debt, but it will also direct some of the funds to future acquisitions. The company’s interest and other financing costs amounted to $251-million in the first half of fiscal 2019, larger than its total loss.
GFL, which stands for “Green for Life,” was founded by Canadian Patrick Dovigi, who is known for his acquisitive mindset. The North American waste management industry has been highly fragmented, and GFL has sought to consolidate the market. The purchase of Waste Industries last year made GFL the fourth-largest waste management company in North America.
As part of its IPO, GFL is selling 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, Mr. Dovigi, the chief executive officer, will hold all of GFL’s multiple voting shares. However, as long as BC Partners has at least 15 per cent of the company’s stock, Mr. Dovigi will have to vote in line with the recommendations of the directors BC has nominated to GFL’s board.
BC Partners, Teachers and another private equity backer, GIC Private Ltd., will collectively control about 63 per cent of GFL’s subordinate voting shares.
Aside from Mr. Dovigi, the other individual with a significant stake in GFL is Ven Poole, the former CEO of Waste Industries. He owns 9.9 million subordinate voting shares, worth US$218-million, at the midpoint of marketing range for GFL’s IPO.
J.P. Morgan Securities, Goldman Sachs, BMO Nesbitt Burns, RBC Dominion Securities and Scotia Capital are lead underwriters for the IPO.