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Biffa Plc - Acquisition

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Biffa plc

Agreement to acquire the Viridor Collections business and certain Recycling assets

Accelerating Biffa's growth strategy as an enabler of the UK circular economy

Biffa plc ('Biffa', 'the Group' or 'the Company') (LSE: BIFF), announces that it has entered into an agreement to acquire the Collections business and certain Recycling assets from Viridor Waste Management Limited* for a cash consideration of c. £126m. This acquisition expands Biffa's collections business and recycling capabilities while solidifying its leading position in UK sustainable waste management. Completion is expected no earlier than August, following the necessary separation steps and subject to Competition and Markets Authority ('CMA') clearance.

Key Highlights of the Transaction

A unique opportunity to acquire a nationwide UK collections and recycling portfolio; highly complementary and accelerating delivery of our strategic objectives

 

Significantly expands Biffa's Industrial and Commercial ('I&C') collections business, delivering economies of scale and substantial synergies

 

Further extends the Group's capabilities across its Specialist Services and Resources & Energy ('R&E') operations, adding long-term contracted revenues and securing the benefits arising from the control of additional feedstocks

Builds on the Group's strong track record as the leading market consolidator in the highly fragmented UK I&C collections market

 

Adds £85m I&C revenue from a diverse base of 21,000 customers and a network of 15 depots across the UK, solidifying Biffa's position as the leader in the UK I&C collections market

 

Leverages the Group's existing market-leading platform to drive significant synergy enhancement

 

Delivers the equivalent of Biffa's previous 3 years' of I&C M&A investment in a single transaction

Underpins Biffa's commitment to delivering its Sustainability Strategy

 

Strengthens Biffa's position as one of the largest recyclers of post-consumer materials in the UK

 

Supports focus on helping customers to increase recycling through improved flexibility of service

 

Increases route density and efficiency, reducing the carbon intensity of our services and better positions the Group to deploy alternative fuel vehicles

 

Increased scale further strengthens positioning to meet upcoming regulatory changes to services including compulsory separate recycling and food waste collections

 

Underpins growth in plastic recycling through increased control of feedstock for Biffa's Polymers business

Earnings enhancing on completion with significant synergies

 

Cash consideration of c. £126m; in addition c. £17m of IFRS16 lease obligations are being assumed  

 

Solid performance through the pandemic; the business has broadly recovered to its FY20 performance levels when it generated revenues of £142m and underlying EBITDA of £18m

 

Synergy opportunities of at least £10m expected to be delivered within a 12 to 18 month period from completion

 

Earnings enhancing on day one; the Group expects underlying EPS accretion of around 3 pence per share once synergies have been realised

 

Funded from £150m of new seven and ten year private placement facilities with MetLife Investment Management and Pricoa Private Capital with an average cost of 2.73%.

 

Pre IFRS16 leverage will reduce back to c. 2x EBITDA within 12 to 18 months of completion 


Michael Topham, Chief Executive of Biffa, commented
 :

" The acquisition of Viridor's Collections business, and certain Recycling assets, is a compelling opportunity for Biffa. The addition of Viridor's £85m collections revenues builds on the Group's strong track record as the leading market consolidator in the highly fragmented I&C collections market. In addition, the acquired recycling and treatment assets broadens our coverage and control of materials, strengthening Biffa's position as one of the largest recyclers of post-consumer materials in UK.

"When combined with the other investments we have made over the past year across waste reduction, recycling and energy recovery, we have positioned the Group as a leading enabler of the UK circular economy, ready to tackle the UK's waste challenge. We look forward to welcoming our new colleagues from Viridor to Biffa in due course."

STRATEGIC OPPORTUNITY

Biffa has a clear strategy for growth, focused on strengthening its circular economy offering in line with its purpose to change the way people think about waste. In recent years the Group has focused on three specific investment areas: growing Biffa's leading I&C Collections platform; expanding its award-winning plastics recycling business, Biffa Polymers; and investing in Energy-from-Waste ('EfW') infrastructure. The Group's strategy was recently strengthened by the acquisition of Company Shop Group which broadened Biffa's positioning across the waste hierarchy, expanding its offering with commercial surplus redistribution and improving its capability to support customers' waste reduction and recycling targets.

The acquisition of Viridor's Collections business and certain Recycling assets represents a highly compelling strategic opportunity fully aligned to these growth ambitions. It builds on the Group's strong track record as the leading consolidator in the highly fragmented UK I&C collections market which has seen Biffa successfully build a market leading platform of scale, acquiring and successfully integrating 45 businesses since 2013, delivering significant synergy benefits.

Biffa's position will be strengthened as one of the largest recyclers of post-consumer materials in the UK, with the acquisition diversifying the R&E business, with 8 additional recycling assets.

The Group's long-term control of plastics feedstock for its Polymers business will also be increased through the acquisition with c. 22,000 tonnes of annual long-term supply . The Group has pledged to quadruple its plastics recycling capacity by 2030 and has committed over £55m of investment in this area in the last two years. The Group is on track to have increased its annual plastics recycling capacity from 60,000 tonnes in FY19 to 155,000 tonnes by the end of FY22.  

A MARKET LEADING COLLECTIONS PLATFORM

Biffa's Collections division comprises the Group's I&C and Municipal businesses, providing sustainable waste collections, recycling and related services to industrial, commercial, public sector and local authority customers. The business generated net revenues of £871m in FY20 (prior to the Covid-19 pandemic).

Inorganic growth has been core to Biffa's growth strategy in its Collections division, and the Group has a strong track record as a market consolidator in the highly fragmented I&C collections market. The I&C business has grown from £350m net revenues in 2014 to £604m in FY20, creating a Collections platform of significant nationwide scale, enhancing customer service and improving operational efficiency whilst growing margins. M&A is also fundamental to the Group's sustainability plans, as we amalgamate additional volumes into existing waste collection routes and thereby reduce congestion, carbon intensity and improve air quality as a result of fewer collections vehicles on the roads.  

Through the acquisition, the Group will acquire Viridor's nationwide I&C fleet of 270 vehicles along with 15 depots across the UK, servicing 21,000 customers, generating £85m of revenue in FY20 (March year-end) and completing over 3m lifts each year. The business will be integrated into Biffa's existing I&C platform across the UK. The acquisition will add two household waste recycling centre contracts ('HWRC') to the Municipal business, these contracts generated £11m of revenue in FY20.

The acquisition will significantly enhance the benefits of scale which the Group already leverages through its I&C platform delivering customer, environmental and financial benefits including:

  • Greater operational coverage and service flexibility which will drive further enhancements to customer service - helping customers to manage their waste more effectively and recycle more.
  • Increased route density which will result in the carbon intensity of the collections service being further reduced in line with Biffa's plans to increase collection route efficiency from 2019 by a further 20% by 2030. This will also enhance the Group's ability to deploy alternative fuel vehicles in the longer term.
  • Significant synergies of at least £10m and improved efficiencies will help drive margin enhancement across the Viridor Collections operations, which had an FY20 underlying EBITDA margin of 7% comparing to Biffa I&C margins of over 16% (before central overheads). Synergies will include the removal of duplicate vehicle routes and depots where appropriate, as well as efficiencies in back office and procurement.
  • Increased scale further strengthens positioning to meet upcoming regulatory changes including compulsory separate recycling and food waste collections.
  • Ongoing partnership with Viridor to ensure customers' waste that cannot be recycled is used as fuel to generate low carbon electricity in Viridor's leading portfolio of Energy Recovery Facilities.

STRENGTHENING OUR RESOURCES & ENERGY PRESENCE

Biffa's R&E division, which includes Recycling, Organics, Inerts and Landfill Gas, focuses on the treatment, recycling, energy recovery and ultimate disposal of waste.

Through the acquisition, the Group will acquire a portfolio of recycling and treatment facilities with revenues of £39m (FY20). These are underpinned by long term local authority supply contracts which contain appropriate risk-sharing mechanisms. The facilities include materials recycling, composting and anaerobic digestion - all of which are core capabilities for Biffa. 80% of Viridor's revenue in this area is from contracts with remaining terms of eight years or more.

Together these assets processed a total of 272,000 tonnes of material during FY20 and will increase Biffa's control of plastics feedstock into its closed-loop plastic recycling operations with c. 22,000 tonnes of annual long-term supply, underpinning the Group's commitment to quadruple its plastics recycling capacity by 2030.

EXPANDING CAPABILITIES IN SPECIALIST SERVICES

Biffa's Specialist Services business provides tailored services to customers who have more complex waste requirements, enhancing Biffa's service provision across the entire waste hierarchy.

The acquisition will add c.£7m of revenue and an additional 3 depots and 1 wastewater treatment plant which expands the division's liquid waste collection and treatment coverage and capabilities.

TRANSACTION DETAILS AND FINANCIAL EFFECTS

The cash consideration of the transaction is c. £126m and in addition, c. £17m of IFRS16 lease obligations are being assumed. In FY20 the business assets acquired delivered revenues of £142m and underlying EBITDA of £18m. Performance throughout the Covid-19 pandemic has been resilient, with I&C collection volume decline and recovery demonstrating a similar trajectory to that seen in the Biffa business. Viridor's R&E assets have remained largely unaffected, reflecting the long-term, contract backed, de-risked nature of the assets being acquired. FY21 underlying EBITDA was c. £16m.

The acquisition will be earnings enhancing on completion and will deliver a growing contribution with at least £10m of cost synergies expected to be delivered within a 12 to 18 month period after completion. Overall, the Group expects to achieve a post synergy underlying EBITDA multiple of c. 5x and a mid-teens post-tax IRR in line with its other investment activity.

The consideration is to be funded from £150m of new seven and ten year private placement facilities from MetLife Investment Management and Pricoa Private Capital with an average cost of funds of 2.73%. Immediately following completion, pre IFRS16 Net debt:EBITDA (as calculated on a bank covenant basis) will rise to c. 2.6-2.7x, remaining well within the Group's covenant headroom before reducing back to c. 2x EBITDA within 12 to 18 months of completion.

Completion is expected no earlier than August, following completion of separation steps and subject to CMA clearance.