HPS to invest in GFL Environmental’s $1.2bn purchase of WCA

Vaughan, Ontario-based GFL Environmental, a portfolio company of BC Partners and Ontario Teachers’ Pension Plan, has agreed to acquire WCA Waste Corporation for US$1.212 billion.

Vaughan, Ontario-based GFL Environmental, a portfolio company of BC Partners and Ontario Teachers’ Pension Plan, has agreed to acquire WCA Waste Corporation for US$1.212 billion. The seller is Macquarie Infrastructure Partners II. WCA operates a network of solid waste assets, including 37 collection and hauling operations, 27 transfer stations, three material recovery facilities and 22 landfills supported by over 1,000 collection vehicles, across 11 U.S. states. GFL, a diversified environmental services provider, will fund the deal in part by a US$600 million investment from HPS Investment Partners

PRESS RELEASE

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.