All financial information in Canadian dollars unless otherwise noted.
GFL Environmental CEO Patrick Dovigi said during an investor call Tuesday that the company would be “reigniting our M&A strategies that have been tempered over the past 18 months” due to the pending sale of a stake in its environmental service business.
GFL announced earlier in the day its plans to sell 56% of its environmental services division to funds affiliated with Apollo and BC Partners in a deal valued at $8 billion. Dovigi said the transaction had no pending regulatory barriers and could close by March.
The company expects to use the proceeds from the sale to repay up to $3.75 billion in debt and buy back up to $2.25 billion worth of shares. According to a presentation shared with investors, GFL also expects that its deleveraged balance sheet and higher adjusted free cash flow conversion will allow annual solid waste M&A spending of approximately $1 billion.
GFL has been especially focused on reducing its debt leverage in recent years, after a long period of rapid growth that included going public. In 2022 the company spun off its infrastructure division, while retaining a stake in it.
All of this comes as GFL is working to achieve an investment-grade credit rating to improve its financing options.
“We're expecting this to be a material accelerant of our path. We've been on credit positive watch with the agencies, and certainly our initial discussions with them is that this [sale] is highly positive,” said CFO Luke Pelosi during the investor call. Pelosi later noted that “you're not going to see us stop all growth initiatives in order to achieve that [investment grade] rating as quickly as possible.”
GFL will continue to benefit from owning a stake in the environmental services business, which Dovigi expects will grow more quickly via a private equity model. He said that could hypothetically yield a return on GFL’s investment of at least $3.4 billion in five years. GFL also has the option to buy back its full stake within that time frame. Dovigi said “both options are very compelling” and allow long-term flexibility.
Canada-based GFL has been one of the North American waste industry’s most active acquirers for solid and liquid waste assets in recent years, but it had slowed that pace more recently.
The company tightened its footprint in 2023 by exiting certain markets with divestitures to Republic Services, Casella Waste Systems and WM. And aside from purchasing a mid-sized Florida C&D company, last year the company largely focused on a handful of small tuck-in deals. Its M&A spending through Q3 was $613.5 million.
Executives said they’ll have more details to share at an upcoming investor day on Feb. 27, but they previewed their M&A thinking.
“We have a very robust pipeline for solid waste M&A, a lot of great opportunities that fit within our existing footprint that are going to be highly accretive to us as shareholders,” said Dovigi. “So I think you'll see us get back to doing what we've done for a long period of time, and it's going to be an exciting 2025 and beyond.”
