GFL Environmental has agreed to sell a majority stake in its environmental-services business to affiliates of Apollo and BC Partners for $8 billion.

The deal encompasses industrial properties across North America and is set to close in the first quarter of 2025, subject to customary conditions. Vaughan, Ont.-based GFL owns, operates and manages a diverse network of solid and liquid-waste disposal, transfer and recycling facilities throughout the continent.

GFL will retain a 44% equity interest in the business, while New York-based Apollo and London-headquartered BC Partners will each hold a 28% stake. The transaction is expected to generate approximately $6.2 billion in net cash proceeds for GFL after accounting for retained equity and taxes.

The company plans to allocate up to $3.75 billion of the proceeds to debt repayment, with an additional $2.25 billion earmarked for share repurchases, subject to market conditions, and the remainder for transaction fees and general corporate purposes.

The strategic is designed to reduce GFL’s net leverage to 3.0x and strengthen the company’s financial position.

“The sale of our environmental-services business at an enterprise value of $8 billion is substantially above our initial expectations and is a testament to the quality of the business that we have built,” said Patrick Dovigi, GFL’s founder and CEO.

“The transaction will allow us to materially delever our balance sheet, accelerating our path to an investment-grade credit rating. A deleveraged balance sheet will provide ultimate financial flexibility to deploy incremental capital into organic growth initiatives and solid-waste [company mergers and acquisitions] and allow for a greater return of capital to shareholders through opportunistic share repurchases and dividend increases, while maintaining a targeted Net Leverage in the low threes.”

Dovigi emphasized the tax-efficient nature of the deal and GFL’s option to repurchase the environmental-services business within five years of closing.

“The transaction allows us to monetize the Environmental Services business in a tax-efficient manner while retaining an equity interest that will allow us to participate in what we expect to be continued value creation from these high-quality assets. In addition, GFL will maintain an option, not an obligation, to repurchase the Environmental Services business within five years of closing.”

The debt repayment is expected to yield significant savings for GFL.

“The repayment of debt is expected to reduce our annualized cash interest expense by approximately $200 million, resulting in significantly improved free cash-flow conversion,” Dovigi added.

Apollo and BC Partners also expressed optimism about the acquisition.

“GFL Environmental Services is a leading North American provider of increasingly essential industrial and waste-management services, with a broad customer base and exposure to attractive and growing end markets,” said Craig Horton, partner at Apollo. “This transaction will provide the environmental- services business with greater flexibility to pursue organic and inorganic growth opportunities as an independent business, while also taking advantage of the strategic, value-added resources and structuring capability of the Apollo platform.”

Paolo Notarnicola, partner and co-head of services at BC Partners, said the firm has had a long, successful relationship with Dovigi and GFL.

“Under [Dovigi’s] leadership, we have seen GFL’s environmental services- business grow from a small franchise in Ontario in 2018 to a leading operator with over $500 million in adjusted EBITDA,” said Notarnicola. “Going forward, we are excited about the growth potential of this business, which is best placed to capitalize on the significant consolidation opportunity in the environmental services industry, including further expansion in the United States.”

The deal received unanimous approval from GFL’s board of directors, following a recommendation by a special committee of independent and disinterested directors. Canaccord Genuity Corp. provided a fairness opinion confirming the financial merits of the transaction.

Multiple financial and legal advisors supported the transaction, including Brown, Gibbons, Lang & Company Securities, J.P. Morgan Securities, Latham & Watkins, Stikeman Elliott, and others.

Photo: GFL