VAUGHAN, ON, Aug. 12, 2020
/PRNewswire/ - GFL Environmental Inc. (NYSE: GFL) (TSX: GFL) ("GFL"
or the "Company"), a leading North American diversified
environmental services company, today announced that it has entered
into a definitive agreement with an affiliate of Macquarie
Infrastructure Partners II (the "Seller") to purchase WCA Waste
Corporation and its subsidiaries ("WCA") for an aggregate purchase
price of US$1.212 billion (the
"Acquisition"). The purchase price for the Acquisition will be
financed in part with the net proceeds of a private placement of
US$600 million of equity and the
balance through a combination of cash on hand and capacity under
the Company's revolving credit facility.
WCA operates a vertically-integrated network of solid waste
assets, including 37 collection and hauling operations, 27 transfer
stations, 3 material recovery facilities and 22 landfills supported
by over 1,000 collection vehicles, across 11 U.S. states.
WCA has an established regional platform with a growing
footprint across the Midwest and Southeast U.S., including three
key markets in Texas, Missouri and Florida and generates
annualized revenue of approximately US$400
million.
Strategic Benefits of the Acquisition
The Acquisition is expected to support GFL's continued organic
growth by further extending its reach into new and adjacent markets
and forming a base to pursue synergistic tuck-in acquisitions. GFL
expects that the Acquisition will expand its U.S. footprint while
creating an opportunity to realize meaningful synergies and free
cash flow accretion. The Acquisition is expected to:
- Further Expand GFL's Geographical Reach. The
Acquisition provides GFL with an attractive opportunity to extend
its geographical reach into the U.S. Midwest and Southeast, through
a network of vertically integrated assets with a strong regional
market presence in the States of Texas, Florida and Missouri.
- Provide a Complementary Asset Network. The Acquisition
brings a high-quality, complementary asset network and customer
base to GFL's existing operations and the divestiture operations to
be acquired by GFL from Waste Management, Inc. and Advanced
Disposal Services, Inc. ("ADS") in the Southeastern U.S.
- Create Long Term Shareholder Value. The Acquisition
reinforces the Company's goal of creating long term equity value
for shareholders. The high-quality portfolio of acquired assets
coupled with WCA's strong operating margins are expected to be
accretive to free cash flow and provide opportunities for the
Company to continue to pursue its growth strategy.
Following completion of the acquisition of WCA and the
divestiture assets from Waste Management and ADS, GFL will operate
in nine provinces in Canada and in
27 states in the United
States.
"We continue to deliver on our goal of pursuing strategic and
accretive acquisitions to grow our business. The WCA
transaction, which we have been working on for over a year, is
another example of this commitment. The high quality, vertically
integrated network of assets, together with our recently announced
acquisition of certain divestiture assets resulting from the Waste
Management and ADS transaction, will complement our existing
footprint and provide us with the runway to further expand in the
U.S. through tuck-in acquisitions and providing our suite of
environmental services solutions to new customers. We are excited
to welcome almost 1,600 employees of WCA to the GFL family,"
said Patrick Dovigi, the Founder and Chief Executive Officer
of GFL. "To fund part of the transaction, we will be issuing new
equity to HPS Investment Partners, LLC, a long standing partner of
GFL, at a premium to market. Their continued support is a
testament to their belief in the value proposition of GFL. The new
equity will help us maintain our leverage within expected
levels."
Mr. Dovigi added, "Our multi-disciplinary integration team has a
successful track record of integrating acquisitions like WCA and
the Waste Management/ADS divestiture assets. We have been working
on integration preparation of the divestiture assets since earlier
this year which has allowed us to significantly advance our
integration plans. We are well-positioned to bring these operations
and WCA on board."
Scot French, Co-Governing Partner
of HPS, said, "Today's announcement represents a key component of
GFL's acquisition plan which will help further position the Company
for continued long-term success. We look forward to building
on our now seven-year partnership with Patrick and his entire team
as they continue to execute their growth strategy."
Financing of the Acquisition
GFL is well positioned to fund the Acquisition with its strong
balance sheet and proven access to the capital markets. The Company
expects to finance the Acquisition through a combination of cash on
hand, capacity under the Company's revolving credit facility and
the net proceeds from the issuance of US$600
million of Series A convertible preferred shares (the
"Preferred Shares") to affiliates of HPS Investment Partners, LLC
(the "Investors"). We will also explore a longer-term strategic and
opportunistic debt financing of US$500
million to US$750 million, as
such opportunities present themselves.
The Company and the Investors have entered into a subscription
agreement pursuant to which the Investors have agreed to subscribe
for an aggregate of 28,571,429 Preferred Shares at US$21.00 per share, for aggregate gross proceeds
of US$600 million (the "Private
Placement").
The Preferred Shares are initially convertible into 23,809,524
Subordinate Voting Shares, representing approximately 6.8% of the
issued and outstanding Subordinate Voting Shares and 5.2% of the
outstanding voting rights attached to the Company's shares,
assuming the closing of the Acquisition and based on the initial
liquidation preference and a conversion price of US$25.20 per share, representing more than a 20%
premium to the current market price.
The liquidation preference of the Preferred Shares will accrete
at a rate of 7% per annum, compounded quarterly, provided that,
after year four, if GFL elects to pay the optional redemption
amount (as described below) for a particular quarter in cash, the
accretion rate for that quarter will be 6% per annum.
The Preferred Shares are subject to transfer restrictions, but
can be converted into Subordinate Voting Shares by the holder at
any time. GFL may also require the conversion or redemption of the
Preferred Shares at an earlier date in certain circumstances. From
and after the fourth anniversary of the closing of the Private
Placement, GFL will have the option each quarter to redeem a number
of Preferred Shares in an amount equal to the increase in the
liquidation preference for the quarter. The optional
redemption will be satisfied in either cash or Subordinate Voting
Shares at the election of GFL.
The holders of the Preferred Shares will be entitled to vote on
an as-converted basis for all matters on which holders of
Subordinate Voting Shares and multiple voting shares vote, and to
the greatest extent possible, will vote with the holders of
Subordinate Voting Shares and multiple voting shares as a single
class.
While the Preferred Shares will not be listed on any stock
exchange, the Toronto Stock Exchange has conditionally approved the
listing of the Subordinate Voting Shares underlying the Preferred
Shares and we intend to list the Subordinate Voting Shares
underlying the Preferred Shares on the New York Stock Exchange.
Following completion of the Acquisition and the issuance of the
Preferred Shares, GFL expects to maintain its current credit rating
profile and leverage within previously stated ranges.
Timing and Approvals
The Acquisition is subject to certain customary closing
conditions, including approval by the U.S. Department of Justice.
The Acquisition is not subject to any financing conditions. Closing
is expected to occur in the fourth quarter of 2020.
The closing of the Private Placement is subject to certain
customary closing conditions, including the closing of the
Acquisition. The Private Placement and the Acquisition will
close concurrently.
2020 Outlook
GFL also provided its outlook for 2020. The Company's
outlook excludes additional acquisitions that may close during the
year, including the WCA transaction and the acquisition of
divestiture assets from Waste Management and ADS. The outlook
provided below is forward looking and actual results may differ
materially depending on risks and uncertainties detailed in this
press release and in the Company's periodic filings with the U.S.
and Canadian securities regulators. See "Forward Looking
Statements" and "Non-IFRS Measures" below.
- Revenue is estimated to be between $4,040 million to $4,080
million
- Adjusted EBITDA is estimated to be between $1,040 million to $1,060
million and Net loss is estimated to be between $459 million and $444
million
- Cash flow from operating activities (before certain costs
associated with our initial public offering and transaction costs)
is estimated to be between $730
million and $750 million.
Implicit in forward-looking statements in respect of the
Company's expectations for 2020 are certain current assumptions,
including, among others, no changes to the current economic
environment and that none of the jurisdictions in which the Company
operates institute additional COVID-19 emergency measures including
shelter-in-place or similar orders.
The Company's 2020 outlook is based on management's current
views and strategies, our assumptions and expectations concerning
our growth opportunities, and our assessment of the opportunities
for our business, and has been calculated using accounting policies
that are generally consistent with our current accounting policies.
The purpose of disclosing our 2020 outlook is to provide investors
with more information concerning the financial impact of our
business initiatives and growth strategies described in the
Company's final prospectus relating to its initial public offering
dated March 2, 2020.
Conference Call
The Company will hold an investor call on Thursday, August 13, 2020 at 8:30 am to discuss the Acquisition and related
financing. Participants can access the call by dialing (647) 490
5367 or 1 (800) 367-2403 (confirmation code 1093500)
approximately 15 minutes prior to the scheduled start time. A copy
of the presentation for the call will be available at
https://investors.gflenv.com or by clicking here.
About GFL
GFL, headquartered in Vaughan,
Ontario, is the fourth largest diversified environmental
services company in North America,
providing a comprehensive line of non-hazardous solid waste
management, infrastructure & soil remediation and liquid waste
management services through its platform of facilities throughout
Canada and in 23 states in
the United States. Across its
organization, GFL has a workforce of more than 13,000 employees and
provides its broad range of environmental services to more than
135,000 commercial and industrial customers and its solid waste
collection services to more than 4 million households. For more
information, visit www.gflenv.com. To subscribe for investor email
alerts please visit https://investors.gflenv.com or click here.
Forward-Looking Statements
This release includes certain "forward-looking statements",
including statements relating to the expected financial and other
benefits of the Acquisition to GFL and its shareholders, the
financing of the Acquisition and the closing of the Acquisition and
the Private Placement (including the expected timing of closing),
as well as GFL's expected credit rating profile, growth plans, and
leverage and outlook for 2020, including any changes to the current
economic environment or the further impact of COVID-19. In some
cases, but not necessarily in all cases, forward-looking statements
can be identified by the use of forward looking terminology such as
"plans", "targets", "expects" or "does not expect", "is expected",
"an opportunity exists", "is positioned", "estimates", "intends",
"assumes", "anticipates" or "does not anticipate" or "believes", or
variations of such words and phrases or state that certain actions,
events or results "may", "could", "would", "might", "will" or "will
be taken", "occur" or "be achieved". In addition, any statements
that refer to expectations, projections or other characterizations
of future events or circumstances contain forward-looking
statements. Forward-looking statements are not historical facts,
nor guarantees or assurances of future performance but instead
represent management's current beliefs, expectations, estimates and
projections regarding future events and operating performance.
Forward-looking statements are necessarily based on a number of
opinions, assumptions and estimates that, while considered
reasonable by GFL as of the date of this release, are subject to
inherent uncertainties, risks and changes in circumstances that may
differ materially from those contemplated by the forward-looking
statements. Important factors that could cause actual results to
differ, possibly materially, from those indicated by the
forward-looking statements include, but are not limited
to, the risks and uncertainties inherent in the Acquisition
and in our business, including, without limitation: the occurrence
of any event, change or other circumstances that could give rise to
the termination of the Acquisition Agreement; the failure to
satisfy any of the conditions to the consummation of the
Acquisition, including but not limited to, the risk the U.S.
Department of Justice may prohibit, delay or refuse to grant
approval for the consummation of the Acquisition on acceptable
terms, or at all; the risk that the contemplated financing for the
Acquisition described in this press release is not obtained; risks
related to disruption of the Company's management's attention from
the Company's ongoing business operations due to the Acquisition;
the effect of the announcement of the Acquisition on the Company's
business relationships, operating results and business generally;
the risk that any announcements relating to the Acquisition could
have adverse effects on the market price of the Company's shares;
the risk that the Acquisition will not be consummated within the
expected time period or at all; and the risk that the expected
strategic benefits described in this press release may not be
achieved if the Acquisition is consummated. Other important
factors that could cause actual results to differ materially from
the Company's expectations are set forth in the "Risk Factors"
section of the Company's final prospectus relating to its initial
public offering dated March 2, 2020
and the Company's other periodic filings with the SEC and the
securities commissions or similar regulatory authorities in
Canada. These factors are not
intended to represent a complete list of the factors that could
affect GFL. However, such risk factors should be considered
carefully. There can be no assurance that such estimates and
assumptions will prove to be correct. You should not place undue
reliance on forward-looking statements, which speak only as of the
date of this release. GFL undertakes no obligation to publicly
update any forward-looking statement, except as required by
applicable securities laws.
About HPS Investment Partners
HPS Investment Partners is a leading global investment firm that
seeks to provide creative capital solutions and generate attractive
risk-adjusted returns for our clients. We manage various strategies
across the capital structure that include syndicated leveraged
loans and high yield bonds to privately negotiated senior secured
debt and mezzanine investments, asset-based leasing and private
equity. The scale and breadth of our platform offers the
flexibility to invest in companies large and small, through
standard or customized solutions. At our core, we share a common
thread of intellectual rigor and discipline that enables us to
create value for our clients, who have entrusted us with
approximately $62 billion of assets
under management as of July 2020. For
more information, please visit www.hpspartners.com.
Non-IFRS Measures
This press release makes reference to certain non-IFRS measures.
These measures are not recognized measures under IFRS and do not
have a standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other
companies. Accordingly, these measures should not be considered in
isolation or as a substitute for analysis of our financial
information reported under IFRS. Rather, these non- IFRS measures
are used to provide investors with supplemental measures of our
operating performance and thus highlight trends in our core
business that may not otherwise be apparent when relying solely on
IFRS measures. We also believe that securities analysts, investors
and other interested parties frequently use non-IFRS measures in
the evaluation of issuers. Our management also uses non-IFRS
measures in order to facilitate operating performance comparisons
from period to period, to prepare annual operating budgets and
forecasts and to determine components of management
compensation.
Adjusted EBITDA is a supplemental measure used by management and
other users of our financial statements including our lenders and
investors, to assess the financial performance of our business
without regard to financing methods or capital structure. Adjusted
EBITDA is also a key metric that management uses prior to execution
of any strategic investing or financing opportunity. For example,
management uses Adjusted EBITDA as a measure in determining the
value of acquisitions, expansion opportunities, and dispositions.
In addition, Adjusted EBITDA is utilized by financial institutions
to measure borrowing capacity. Adjusted EBITDA is calculated by
adding and deducting, as applicable, certain expenses, costs,
charges or benefits incurred in such period which in management's
view are either not indicative of our underlying business
performance or impact the ability to assess the operating
performance of our business. See attached Non-IFRS
Reconciliation Schedule.
NON-IFRS RECONCILIATION SCHEDULE
Adjusted EBITDA
The following tables provide a reconciliation of our net loss to
EBITDA and Adjusted EBITDA for the 2020 Outlook:
($
millions)
|
|
Estimated
Range
|
|
|
Low
|
|
High
|
Net loss
|
|
$
|
(459)
|
|
$
|
(444)
|
Add:
|
|
|
|
|
|
|
Interest and other
finance costs
|
|
|
528
|
|
|
528
|
Depreciation and
amortization
|
|
|
507
|
|
|
507
|
Amortization of
intangible assets
|
|
|
420
|
|
|
420
|
Income tax
recovery
|
|
|
(151)
|
|
|
(146)
|
EBITDA
|
|
|
846
|
|
|
866
|
Add:
|
|
|
|
|
|
|
Loss on foreign
exchange and derivatives(1)
|
|
|
85
|
|
|
85
|
IPO transaction
costs(2)
|
|
|
46
|
|
|
46
|
Transaction &
acquisition integration costs(3)
|
|
|
28
|
|
|
28
|
Other(4)
|
|
|
35
|
|
|
35
|
Adjusted
EBITDA
|
|
$
|
1,040
|
|
$
|
1,060
|
(1)
|
Consists of (i)
non-cash gains and losses on foreign exchange and interest rate
swaps entered into in connection with our debt instruments, (ii)
gains and losses attributable to foreign exchange rate
fluctuations, (iii) mark to market loss on fuel hedge, and (iv) the
fair value mark to market adjustment on the tangible equity unit
("TEU") purchase contracts.
|
(2)
|
Consists of costs
associated with our initial public offering ("IPO"), such as legal,
audit, regulatory and other fees and expenses incurred in
connection with the IPO, as well as underwriting fees related to
the TEUs that were expensed as incurred.
|
(3)
|
Transaction costs
consist of acquisition, integration and other costs such as legal,
consulting and other fees and expenses incurred in respect of
acquisitions and financing activities completed during the
applicable period. We expect to incur similar costs in connection
with other acquisitions in the future and, under IFRS, such costs
relating to acquisitions are expensed as incurred and not
capitalized. This is part of SG&A. Acquisition integration
costs relate to the rebranding of equipment acquired through
business acquisitions. We may incur similar expenditures in the
future in connection with other acquisitions. This is part of cost
of goods sold.
|
(4)
|
Consists of (i) loss
on sale of property, plant and equipment, (ii) share-based
payments, and (iii) deferred purchase consideration.
|
Free Cash Flow Reconciliation
The following tables provide a reconciliation of free cash flow
to cash flows from operating activities for the 2020 Outlook:
($
millions)
|
|
Estimated
Range
|
|
|
Low
|
|
High
|
Cash flows from
operating activities before the items below
|
|
$
|
730
|
|
$
|
750
|
Add:
|
|
|
|
|
|
|
Costs associated with
IPO related debt repayment(1)
|
|
|
(153)
|
|
|
(153)
|
Transaction and
acquisition integration costs(2)
|
|
|
(28)
|
|
|
(28)
|
Acquisition related
working capital
|
|
|
1
|
|
|
1
|
Deferred purchase
consideration
|
|
|
(1)
|
|
|
(1)
|
Cash flows from
operating activities
|
|
|
549
|
|
|
569
|
Net capital
expenditures
|
|
|
(365)
|
|
|
(375)
|
Free Cash
Flow
|
|
|
184
|
|
|
194
|
Free cash flow-first
half of year (reported)
|
|
|
(134)
|
|
|
(134)
|
Free Cash Flow-
second half of year (outlook)
|
|
$
|
318
|
|
$
|
328
|
(1)
|
Consists of costs
associated with the IPO such as legal, audit, regulatory and other
fees and expenses incurred in connection with the IPO, as well as
underwriting fees related to the TEUs that were expensed as
incurred. Also includes costs associated with the extinguishment of
the 11% paid-in-kind notes ("PIK Notes"), the 2022 Notes and the
2023 Notes, the termination of the swap arrangements associated
with the 2022 Notes and the 2023 Notes, and accelerated interest
payments of the PIK Notes, the 2022 Notes and the 2023
Notes.
|
|
|
(2)
|
Transaction costs
consist of acquisition, integration and other costs such as legal,
consulting and other fees and expenses incurred in respect of
acquisitions and financing activities completed during the
applicable period. We expect to incur similar costs in connection
with other acquisitions in the future and, under IFRS, such costs
relating to acquisitions are expensed as incurred and not
capitalized. This is part of SG&A. Acquisition integration
costs relate to the rebranding of equipment acquired through
business acquisitions. We may incur similar expenditures in the
future in connection with other acquisitions. This is part of cost
of goods sold.
|
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SOURCE GFL Environmental Inc.