GFL Environmental Inc. is pulling its initial public offering after institutional investors pressed the Canadian waste management giant to price its shares below the deal’s marketing range.
The IPO, which launched in mid-October, was expected to raise as much as US$2.4-billion, with GFL marketing as many as 100.7 million shares to potential buyers at US$20 to US$24 each.
However, institutional investors balked at this range over the past two weeks and pushed the company to price its deal at US$18 a share, partly because of concerns about the company’s debt load.
Instead, GFL says it will scrap the deal altogether and revisit an IPO in the future.
“The [existing] shareholders have determined that, at US$18, we don’t believe that represents fair value for the company, so the shareholders have decided to inject more equity into the business to fund the future growth of the company and revisit the public markets at a later date,” chief executive officer Patrick Dovigi said in a statement to The Globe and Mail.
GFL’s existing private equity backers include BC Partners and Ontario Teachers’ Pension Plan.
Cancelling the deal will be a major blow for Canada’s capital markets. Financing activity has been soft in 2019, and there are some fears that public investors are losing the ability to own stakes in large, quality companies because private buyers keep acquiring them at a rapid pace. GFL’s IPO would have added a fast-growing company to the Toronto Stock Exchange.
The deal was also set to be one of the largest in Canadian history. There are few comparable IPOs, but previous billion-dollar deals include Ottawa’s sale of Canadian National Railway in 1995, which netted $2.2-billion, and Manulife Financial Corp.’s first public offering in 1999, which raised $2.5-billion.
GFL, which stands for Green for Life, was founded by Mr. Dovigi, who is known for his acquisitive mindset. The North American waste management industry has been highly fragmented, and GFL has sought to consolidate the market.
The company floated the idea of an IPO as far back as 2017, but its plans seemed to change after BC and Teachers bought the company in 2018 from its previous private equity backers. A few months later, GFL announced its largest acquisition to date, buying North Carolina-based Waste Industries for $3.65-billion, including debt. The purchase of Waste Industries last year made GFL the fourth-largest waste management company in North America.
The company’s balance sheet is now loaded with debt – both from the 2018 deals, and from borrowing to help fund acquisitions over the years. In April, the company issued US$500-million worth of unsecured notes, and the securities were rated Caa2 by Moody’s Investors Service and CCC by Standard & Poor’s – deep in junk rating territory.
GFL also had yet to demonstrate its profit potential. Over its past three fiscal years GFL lost a cumulative $737-million, and in the first six months of fiscal 2019, the company lost $161-million, according to a regulatory filing for its IPO.
Acknowledging the debt burden, GFL made it clear to investors that it planned to use some IPO proceeds to repay some debt. The company’s interest and other financing costs amounted to $251-million in the first half of fiscal 2019.
GFL also hoped it would benefit from selling into a hot market for waste companies. Major rivals Republic Services Inc., Waste Management Inc. and Waste Connections Inc. traded at an average of 33 times their earnings per share for the past 12 months when GFL launched its IPO, and anything over 15 to 20 times earnings is considered unusual.
Stock markets broadly have also been frothy, with the S&P/TSX Composite Index setting a record high in September. In the U.S., where GFL was set to be dual-listed, the S&P 500 closed at a record high on Monday.
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