UK waste group Biffa is to return to private infrastructure hands after the US-based Energy Capital Partners completed a take-private deal worth an enterprise value of £2.1 billion ($2.6 billion; €2.4 billion).
The company has been delisted from the London Stock Exchange, 15 years after it was last done so by Global Infrastructure Partners and Montagu Private Equity in a £1.7 billion deal. The transaction would turn sour four years later, when lenders stepped in amid £1.1 billion of debt.
In 2017, GIP chairman Adebayo Ogunlesi told Infrastructure Investor the investment was a “disaster”, attributing the failure in part to a lack of industrial waste amid knock-on effects from the global financial crisis.
“It’s an entirely different story now than it was then,” said Andrew Gilbert, partner at ECP. “Then, it was more of a North America-style model, driving waste volumes into landfills. Today is almost the opposite. It’s all about landfill diversion, sending majority of the waste it collects to waste energy and recycling more and more of it. Landfills is a legacy business which is declining over time. There’s still a need for them, but it’s a very small piece of the business and will decrease under our ownership.”
Biffa today provides waste services to about 100,000 UK business customers and about two million households, handling around eight million tons of resources every year. However, Gilbert said there were a number of projects just operational or soon to be operational that hadn’t yet contributed to Biffa’s earnings and subsequently devalued in the public markets’ valuation of the business.
“There were a number of longer-term recycling investments and waste-to-energy investments they were making that we don’t think were reflected in the value of the business. We approached the board and indicated our interest and that’s how it started,” he added.
ECP, investing via its Energy Capital Partners V fund, paid 410p per share for Biffa, a 28 percent premium to the share price displayed in June last year, when ECP’s interest was first revealed by Biffa, amid a series of unsolicited bids. Gilbert believes the take-private valuation compares quite favourably to what ECP could have bought in the private markets and anticipates the private ownership of Biffa to be additive to the business.
“We think the capital, especially around recycling given the regulatory support there, will grow and they’ll need more capital to invest and we’ll provide that,” he outlined. “I think it was hard as a public company to do too much M&A at once so the approach was one deal at a time. There’s some merit to that but we’re going to be as aggressive as possible. If there are multiple opportunities and the company can handle it, we’re going to do those. We’re not as worried about what that might do to next six-month results.”
Gilbert declined to add more on the ongoing tax investigation by UK authorities into a misclassification of waste across the industry. A £20 million provision was set aside for this investigation, Biffa’s 2022 annual report revealed, leading to an £8 million loss for the year.