All financial information in Canadian dollars
- GFL Environmental announced an agreement late Monday to acquire Canadian company Terrapure Environmental's Solid Waste and Environmental Solutions business, excluding its battery recycling operations, for $927.5 million. Pending regulatory approval, the deal could close by the third or fourth quarter.
- Terrapure reported $365 million in revenue last year, amid effects of the pandemic, and offers a range of solid waste and liquid waste services. The relevant division currently services more than 7,000 customers, with an estimated 1,600 employees and more than 500 collection vehicles.
- In addition to solidifying GFL's Canadian presence, executives consider the deal attractive because it includes the Stoney Creek industrial landfill near Toronto. That site, permitted for up to 750,000 metric tons per year, recently received approval for a vertical expansion expected to add 14 years to its lifespan.
This deal, previously hinted at during GFL's February earnings call, has been pursued by the company for nearly seven years and marks yet another notable expansion. According to remarks by executives in a Tuesday investor call, GFL attempted the deal in 2014 and 2019 but couldn't reach an agreement around excluding the battery recycling business. The current version of Terrapure, owned by Birch Hill Equity Partners, was formed via the acquisition of Newalta Corporation's industrial division in 2015 and has since grown through multiple other deals.
GFL now sees clear opportunities to cross-sell services to Terrapure customers in a way that hasn't been maximized and gain at least $12.5 million in initial synergies from streamlining systems and infrastructure. The transaction also marks a further solidification of the major North American company's footprint in its home country.
"Now when you look at the business we literally have coverage of all of our services from basically Vancouver Island all the way to Newfoundland, which is highly compelling from our perspective," said CEO Patrick Dovigi during the call.
While GFL continues to see multiple acquisition opportunities in Canada, executives reiterated most are smaller tuck-ins. The Terrapure transaction is considered notable for its scale and the "extremely unique opportunity" to acquire the Stoney Creek landfill.
First permitted in 1996 as the Taro East Landfill, the site was acquired by Terrapure in 2015 as part of the Newalta transaction. While the landfill can take up to 750,000 metrics tons per year, Dovigi said that has recently been closer to 300,000 during the permitting process. Approval came in 2019, along with formal opposition from elected officials in the City of Hamilton according to CBC News, and construction is ongoing. GFL anticipates getting annual volumes back into the 600,000 to 700,000 metric ton range in the medium-term.
What makes the site unique, per GFL, is the ability to internalize higher-value industrial waste in a region where other major landfills – run by Waste Management, Waste Connections and Walker – are focused on MSW. Following the recent acquisition of the Arbor Hills Landfill in Michigan, as part of the Advanced Disposal Services divestiture package, Dovigi said GFL's regional MSW would largely flow there and Stoney Creek's "highest and best use" would be for industrial material.
Looking ahead, GFL does not anticipate issues receiving regulatory approval and is focusing on smaller tuck-in deals throughout its North American footprint. The company reported that integration of major acquisitions from late 2020, such as WCA Waste and the Waste Management/Advanced divestiture package, was "ahead of schedule" and could be done by next quarter.
Executives also said incremental recovery of pandemic-affected business continues, with the heaviest effects still in Canada due to regional public health measures. Terrapure reportedly experienced similar volume impacts as GFL, but is expected to recover in pace with country's economy.
“I think they are now enjoying their business customers reengaging and volumes coming back," said GFL Chief Financial Officer Luke Pelosi, citing the projected late year close as beneficial. “Effectively, we’re looking at a 2022 number in reality and we think we will benefit and enjoy those returned volumes."