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Streetwise Top of the heap: How BC Partners pulled off the biggest private buyout in Canada with GFL deal

GFL Environmental Inc. didn’t set out to be the target of Canada’s largest private management buyout, but it happened anyway.

Little more than five months ago, Patrick Dovigi, founder and chief executive of the Canadian waste-management giant, was fixed on taking his fast-growing company public in a share offering expected to be worth as much as $1-billion. Instead, the business was sold to new private-equity buyers BC Partners and Ontario Teachers’ Pension Plan for an enterprise value of $5.13-billion in April and the deal closed late last week.

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Paolo Notarnicola, a senior partner at London-based BC Partners, first met Mr. Dovigi when GFL was pursuing that IPO. Mr. Notarnicola, who had been hunting for the firm’s first big buy in Canada and also studying the waste-management space, thought it was worth trying to convince GFL to reconsider the prospect of a new private partner with deep pockets to fund its ambitious acquisition plans and with a longer-term view.

“When we were finally able to meet with Patrick and discuss our approach – which is about growth and partnership – that’s when I think the alignment of interests comes together,” said Mr. Notarnicola, who was born in Italy but now splits his time between New York and Montreal.

GFL, which stands for “green for life,” is known for its neon trucks that collect, transport and dispose of solid and liquid waste matter, as well as performing soil remediation and infrastructure-related work. Founded in 2007, GFL now has more than 140 facilities across Canada and in Michigan, with plans to add more in areas such as Western Canada and the United States. Mr. Notarnicola says that the waste-management industry, with its long contracts, is also somewhat insulated from market downturns.

As with GFL, BC Partners has been branching out after about 30 years of buyouts, first in Europe and then in the United States, including some consumer brands such as PetSmart. Earlier this year, BC Partners closed its tenth fund called BC European Capital X at its target size of €7-billion ($10.6-billion Canadian) and earmarked a portion of it for North America. The firm also recently announced a new real estate group, and last year launched a credit fund.

BC Partners has also built up relationships with Canadian pension funds. Last year, it teamed up with the Ontario Teachers’ Pension Plan and The Public Sector Pension Investment Board to buy German ceramic parts and components maker CeramTec. And in 2012, BC Partners, the Canada Pension Plan Investment Board (CPPIB) and other co-investors acquired telecom company Suddenlink Communications, with an enterprise value of US$6.5-billion.

Private-equity buyers are operating in an environment of soaring deal valuations, climbing leverage ratios and record volumes of capital available for investment – conditions that are causing a slowdown in large Canadian buyouts in the private market, according to the Canadian Venture Capital and Private Equity Association (CVCA).

But when deals are getting done, they are large. Prior to the GFL deal, the $4.96-billion secondary buyout of Husky Injection Molding Systems by a U.S. investment firm that closed earlier this year set a private buyout record, according to data from the CVCA InfoBase. (This excludes the $11.8-billion deal for Tim Hortons in 2014 led by Brazilian private equity fund 3G Capital, as it was a merger with Burger King’s public vehicle.)

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Ahead of the GFL deal closing, Mr. Notarnicola said the company did about $1-billion in debt refinancing, including a new bond issuance, to reduce costs and add some flexibility. Now, “we’re finally getting back to work,” he said. “Our value creation plan has two components. One is the M&A strategy – to keep on growing. And the other is operational improvements,” including investments in branding and customer management. “Yes, there’s going to be more consolidation to happen in the market, but it’s also about better serving our customers.”

The financial terms of the deal weren’t disclosed, but Mr. Notarnicola concedes the transaction wasn’t a bargain. Once the possibility of a buyout was on the table, several handfuls of investors demonstrated an initial interest in GFL.

Mr. Dovigi still intends to pursue the public markets one day, but said that the values, principles and vision of the investors convinced him to stay private, adding that the process leading up to settling on BC Partners and Teachers was exhaustive. The two investors have also brought another unnamed international firm in on the deal.

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