GFL Environmental Inc., based in Vaughan, Ontario, has finalized an agreement to sell a majority stake in its Environmental Services business to funds managed by Apollo and BC Partners. The deal values the business at CA$8 billion ($5.6 billion), surpassing initial expectations. GFL will retain a CA$1.7 billion ($1.2 billion) equity interest, allowing for future value growth, and anticipates net cash proceeds of approximately CA$6.2 billion ($4.3 billion) after accounting for retained equity and taxes.

According to the transaction details shared in a January 7 investor update, GFL will maintain a 44 percent equity stake in the Environmental Services business, while Apollo and BC Partners will each hold 28 percent. The transaction is expected to close in the first quarter of 2025, pending customary closing conditions but not financing conditions.

The strategic rationale behind the sale includes enhancing GFL's balance sheet by reducing debt to investment-grade levels, enabling share repurchases, increasing dividends, and reigniting mergers and acquisitions. The company also aims to invest in organic growth within its core solid waste operations while maintaining synergies between its Environmental Services and Solid Waste divisions.

GFL's board unanimously approved the transaction, following a recommendation from a special committee of independent directors. This committee considered various factors, including a fairness opinion from Canaccord Genuity Corp., which deemed the transaction financially fair for the company.

GFL plans to allocate up to $3.75 billion of the net proceeds to debt repayment, with up to $2.25 billion earmarked for share repurchases, depending on market conditions. The remaining funds will cover transaction fees and general corporate purposes. Post-transaction, GFL expects its net leverage to be around 3X.

In early November 2024, GFL's stock rose by 2.5 percent following reports of higher-than-expected interest in its environmental business. Over 25 parties expressed interest, with initial bids exceeding earlier valuations of $6.5 billion to $7 billion.

For the third quarter of 2024, GFL reported Environmental Services revenue of $460.5 million, up from $447 million in the same period the previous year. This increase included about $20.6 million from unusually high large-event-driven business. Excluding this factor, revenue grew by 7.9 percent.

GFL's founder and CEO, Patrick Dovigi, emphasized that the sale reflects the quality of the Environmental Services business. He noted that the transaction will significantly reduce debt, enhancing financial flexibility for future growth initiatives and shareholder returns through share repurchases and dividend increases. GFL will also retain an option to repurchase the Environmental Services business within five years of closing.

Dovigi highlighted that debt repayment is expected to lower GFL’s annual cash interest expense by approximately $200 million, improving free cash flow. Further financial details will be disclosed when GFL reports its 2024 results in February and during its Investor Day on February 27 at the New York Stock Exchange.