Dive Brief:

• GFL Environmental is selling 73 municipal collection contracts in southeastern Michigan to Priority Waste, according to reporting from local news station WWJ. Priority CEO Todd Stamper told WWJ the deal includes an estimated 500 trucks and 800 employees.
• According to a note from RBC Capital Markets, which confirmed the deal with GFL, the deal represents approximately $150 million in annual revenue and proceeds will be used to pay down GFL’s revolving credit agreement.
• The contracts encompass an estimated 700,000 customers, according to Priority, which the company says will make it the largest residential service provider in Michigan. The deal is set to close June 30.

Dive Insight:

Canada-based GFL first entered the U.S. market in 2016 with the purchase of a Detroit-area hauler, Rizzo Environmental Services, but the industry’s fourth-largest company is in a much different place now.

After scaling significantly through a series of acquisitions, including many in Michigan, GFL is focused on reducing its debt leverage and boosting margins. Last year’s sale of assets to WM, Republic Services and Casella Waste Systems in multiple states was a key step. 

During GFL’s latest earnings call, CEO Patrick Dovigi identified another $150 million of revenue that was mainly in “low-margin residential contracts” which the company was assessing.

“We’re looking to exit some of that revenue or sell it to a local competitor in a local market that will do better for it,” he said.

During WasteExpo’s recent investor summit, CFO Luke Pelosi said GFL was in a new phase after many years of scaling up and investing. “The heavy lifting has been done,” he said, adding that “optimizing the business that we have is something that probably didn't get as much attention for the first 17 years as it's getting today.”

GFL did not respond to a request for comment about the Priority deal prior to publication. The company still has a broader footprint of vertically integrated assets in other parts of Michigan.

Sabahat Khan, an analyst with RBC Capital Markets, said his firm viewed the Priority deal favorably.

“We believe this transaction provides for a modest amount of cash flow that will be used to partly pay down drawn revolver, improves GFL’s margin profile ... and highlights management's commitment to the de-leveraging plan,” wrote Khan.

Detroit privatized waste collection in 2014, awarding contracts to Rizzo and Advanced Disposal Services at the time. Service is now provided by GFL and WM, which acquired the respective companies, but GFL was already set to conclude that contract this week. The Detroit City Council recently awarded multiyear hauling deals to WM and Priority that will take effect June 3. Priority’s contract with the city is valued at nearly $88 million.

Priority, founded in 2018, says it currently services more than 30 municipalities in Michigan, Indiana and Ohio. The company provides a range of collection services via multiple facilities, including a transfer station. It became a portfolio company of private equity firm TRP Capital Partners in 2020 and completed multiple acquisitions around that time. Last fall, a division of Ares Management provided a senior secured credit facility to Priority to support “continued rapid growth and refinance a portion of the company’s existing debt.”

Disclosure: WasteExpo is run by Informa, the owner of Waste Dive’s publisher, Industry Dive. Informa has no influence over Waste Dive’s coverage.