GFL Environmental Inc. has signed an agreement to buy US$835-million worth of waste-collection assets across 10 U.S. states in the company’s first significant acquisitions since going public in March.
The deal, announced Wednesday, will see GFL acquire 32 garbage collection operations, 36 transfer stations and 18 landfills – supported by 380 garbage trucks – from Waste Management Inc. and Advanced Disposal Services Inc. It will give Toronto-based GFL a foothold in new markets such as Wisconsin, and solidify its presence in states such as Michigan, Georgia and Alabama.
The proposed transaction is the result of a continuing merger process between Texas-based Waste Management and Florida-based Advanced Disposal. The two companies are trying to close a multibillion-dollar tie-up, announced in early 2019, and need to divest overlapping assets to comply with U.S. competition law. The GFL deal is conditional on regulators approving the Waste Management and Advanced Disposal merger.
GFL has been eyeing the divestment opportunity for at least eight months, chief executive officer Patrick Dovigi said. He said the deal came together partly because of GFL’s good working relationship with Waste Management, and partly because the company is better placed than rivals to navigate competition issues with the U.S. Department of Justice (DOJ).
“The larger public companies like Waste Connections and Republic [Services Inc.] both would have DOJ-related issues in specific markets that Waste Management has to divest in. So that positioned us very favourably, because from our perspective there was little risk that the DOJ would reject GFL,” Mr. Dovigi said in an interview.
“I think we were the only one of the [potential] buyers that could potentially do this entire thing on their own,” he said.
The timing is also good for GFL from a balance sheet perspective. The company raised $2.7-billion in early March, in what was the third-largest initial public offering in Toronto Stock Exchange history, just before markets tanked because of the novel coronavirus. It went on to raise another $500-million in April by issuing senior secured debt.
The acquisitions will be financed through cash and existing credit facilities, Mr. Dovigi said, adding that the company intends to maintain current levels of debt after the transaction closes. The new assets are expected to generate around US$345-million in annual revenue, and the deal will add 900 employees to GFL.
Short-term results, however, could be dampened by COVID-19. Although waste disposal is considered an essential service in most jurisdictions, for-profit garbage companies have seen revenue drop as businesses closed.
“The residential home volumes went up and the commercial volumes went down,” Mr. Dovigi said. “I’m talking about the big primary markets: office buildings, restaurants, sports arenas, that sort of thing. Volumes clearly went down. Restaurants doing takeout only are producing a third of the waste that they did before.”
With physical-distancing measures starting to ease in many jurisdictions, things have begun to improve for the waste collection industry in recent weeks, Mr. Dovigi added.
“I would say that we’re very fortunate that we’re in the industry that we’re in, in this COVID pandemic. ... While there was some impacts, they were very tempered in relation to a lot of other industries, because waste is an essential service,” he said.
GFL, which is best known for its bright-green garbage trucks, has expanded rapidly in recent years through acquisitions, with more than 100 deals done since 2007.
In the past six months alone, the company – backed by private-equity sponsors BC Partners and the Ontario Teachers’ Pension Plan Board – acquired Michigan-based American Waste Inc. for US$380-million and County Waste of Virginia LLC for US$485-million.
That follows GFL’s US$2.8-billion takeover of North Carolina-based Waste Industries in 2018 and its $775-million acquisition of Matrec, Montreal-based TransForce Inc.‘s solid waste division, in 2016.
The latest deal is expected to close in the third quarter of 2020, pending regulatory approval.
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