Report: GIP, Montagu may sell Biffa for low price

A Financial Times report says the co-owners may accept a cut-price offer for UK waste management business Biffa in exchange for a stake in any ‘future merger synergies’. The business has been struggling with a high debt load and tough market conditions.

Global Infrastructure Partners (GIP), the US-based infrastructure fund manager, and Montagu Private Equity (MPE), the UK-headquartered private equity business, are considering selling UK waste management firm Biffa for “almost nothing” according to a report in the Financial Times. It said the two co-owners would be seeking a share of any “future merger synergies”.

Biffa was acquired by GIP and MPE in a £1.7 billion (€2.0 billion; $2.7 billion) public-to-private transaction in April 2008 and has the largest industrial and commercial waste collection network in the UK with 1,450 collection vehicles serving over 70,000 customers from 128 locations.

The group reported £850 million in revenues and £150 million in earnings before interest, tax, depreciation, amortisation and provisions in the year to March 2012. However, it has £1 billion of gross debt and is said to face a “stringent covenant test” in June.

The business has also been facing adverse market conditions, with the recession resulting in less waste being produced. It has also been hit by increasing taxes on waste management firms still reliant on landfill. Although Biffa acquired recycling specialist Greenstar for £135 million in June 2010, industrial waste still accounts for around 80 percent of its earnings. Critics say it has not made the switch to recycling quickly enough.

Market sources canvassed by Infrastructure Investor said that a strategic review which commenced in January – and which is being advised by Goldman Sachs – was ongoing and expressed the view that no sale was imminent.  

Representatives of Montagu and GIP declined to comment.