UPDATE: Nov. 30, 2021: Covanta's $5.3 billion sale to EQT Infrastructure, a European firm, is now complete. Azeez Mohammed — a longtime energy executive — has taken over as president and CEO, along with a new board of directors.

The deal was completed with what the company described as the "first ever sustainability-linked leveraged buyout," including two 2025 targets that must be met at risk of financial penalty. The targets are for a cumulative 2.5% increase in "sustainably processed waste" and a 25% increase in "waste recycled or reused." This is part of a broader goal to increase activity in both categories 40% by 2030.

EQT has also pledged to increase investments in efforts to "move higher up the waste value chain," upgrading equipment to reduce emissions and investing in host communities.

Dive Brief:

• EQT Infrastructure, a Swedish private equity firm, plans to acquire all shares of Covanta's stock at a price of $20.25. The transaction (including net debt) is valued at $5.3 billion and could close during the fourth quarter of this year, pending regulatory approval.
• According to a release, EQT plans to work with Covanta's team to bolster its existing portfolio of assets that service municipal and commercial customers, as well as pursue "numerous growth opportunities." Prime examples include a "robust UK project pipeline" and the company's Environmental Solutions division.
• Covanta will keep its corporate headquarters in New Jersey and current management team. "Our comprehensive analysis during the past nine months has been singularly focused on enhancing value for our shareholders. EQT certainly recognizes the value we see in our business, and this transaction represents an excellent outcome of our strategic review," said Covanta CEO Michael Ranger in a statement.

Dive Insight:

Last fall, the industry's largest operator of mass burn combustion facilities shook up its leadership team and kicked off a wholesale strategic review in an effort to turn around a stagnant stock price. This outcome, with EQT agreeing to purchase shares well above their recent values, is being touted by Covanta as a strong outcome for the company.

When that review was announced, Chairman of the Board Sam Zell promised a "radical change in direction" and said all options would be on the table for Covanta. Former board member Ranger was brought in to lead the company for a salary of $1, with the rest of his compensation tied to stock performance, and rolled out a series of initial cost cutting efforts as the review unfolded.

In recent months there has been discussion of Covanta possibly exiting contracts, closing certain facilities or divesting its Environmental Solutions division. These options kicked off speculation about which companies could potentially acquire the latter division, or whether WIN Waste Innovations (the U.S. industry's second largest operator of waste-to-energy facilities) might be an interested party in some form. WIN Waste was not interested in a transaction, according to analyst reports. If the EQT-Covanta deal closes the U.S. industry will no longer have a publicly traded company with similar assets, though that could change if WIN Waste goes public in the future as previously hinted.

While Covanta isn't currently disclosing additional details, the initial announcement indicates the company could continue in its current form for the near term.

"EQT is excited to partner with the entire Covanta team and to invest in organizational, operational, and digital technology initiatives that will enhance Covanta's ability to provide sustainable solutions to growing waste challenges. As a responsible investor, EQT is committed to working with Covanta on transforming and supporting the energy transition and circular economy across its local communities," said Alex Darden, a partner within EQT Infrastructure's advisory team, in a statement.

Covanta's most recent quarterly earnings report in April showed signs of positive growth coming out of the pandemic, as volumes recovered and operations stabilized. The company raised annual guidance based on these trends and also outlined expectations for greater free cash flow as its portfolio of U.K. projects continues to expand. In addition to an existing Dublin facility, Covanta anticipates opening four more plants by 2024. During WasteExpo's recent investor summit, Chief Operating Officer Derek Veenhof said the country's waste market could potentially support another 10 plants and Covanta would be "in that race" competing to build them.

Veenhof said he still believed potential U.S. expansion might be possible in some form as disposal tip fees rise amid tightening capacity in multiple areas. Though without any type of notable federal driver around climate or waste management policy, the company sees this as most likely to happen in select markets with supportive client relationships.

"I think there's going to be more opportunity that comes out that market, on either expansion or new build," Veenhof said about Florida specifically. Asked for a possible timeline on expanding existing U.S. facilities or building new ones, Veenhof projected it could be within the next five to seven years.

Covanta currently has 41 waste-to-energy facilities in North America and Europe, with a team of nearly 4,000 people managing an estimated 21 million tons of waste per year.