On the Deal Q&A: Growth Spurt

With new private partners aboard, GFL Environmental continues its ‘ambitious’ plans
There was an intensity behind GFL Environmental’s deal with Private Equity buyers BC Partners and Ontario Teachers’ Pension Plan. That makes sense given the $5.1-billion in enterprise value transaction is Canada’s largest private management buyout to date.

LEXPERT: GFL had been pursuing an IPO before the deal’s April announcement. Why was a private partner the way to go?
Joy Grahek, General Counsel, GFL Environmental: At GFL, we are always considering our strategic alternatives to find the right capital structure to support the growth of the business. … Ultimately, BC Partners, Ontario Teachers’ Pension Plan and their consortium presented a more compelling opportunity for GFL at this stage in its growth plans.

LEXPERT: Can you describe about how this deal came about?
Grahek: GFL’s experience with its private market partners has to date proved to be the more strategic alternative [to a public market transaction] at each successive stage of our plan. It was important to us to find partners that shared GFL’s principles, values and vision, and that had significant capital to contribute to our ambitious growth plans. BC Partners and their consortium ticked all the boxes for us without having to sacrifice value.
Shahir Guindi, Osler, Hoskin & Harcourt LLP (for investors led by BC Partners and OTPP): When GFL was considering its options, it had the opportunity to meet the team at BC Partners. Both parties felt that a relationship would be compelling, and in light of market dynamics and the shareholders that were interested, BC partners was ultimately selected. The recapitalization allowed the company to stay private, continue to grow in the private markets and continue to develop its strategy and be more nimble outside of the public eye. Essentially, it was able to focus on the core business rather than everything else that is required for a public company. It also let them partner up with others that will accelerate the growth and development of the company.

LEXPERT: More specifically, I understand that this was BC Partners’ first large Canadian investment. Was the firm looking for an entry into the waste management sector in particular? What was appealing about the business of GFL?
Grahek: I don’t think they were looking for a waste management deal in particular. They were looking for a great company — as they always do. They were very interested in accessing the Canadian market, but the deal was won on its merits, and wasn’t necessarily derived from geographic or sectoral requirements. The transaction made sense for both parties. Geographic diversity was appealing as was the rate of growth, the management team, the sector itself, the runway and opportunity for growth. It was also appealing for the opportunity of greater synergies with scale.

LEXPERT: How much did GFL know about BC Partners before this deal?
Grahek: Having had several private capital partners since our inception, GFL is familiar with many of the potential investors in our space and their reputations. But just as BC Partners had to get familiar with GFL, GFL had to get comfortable with the people at BC Partners and their consortium members to be satisfied that they would be the supportive, committed and strategic partners that GFL needed at this stage in the implementation of our growth plans. The process allowed us to do that.
LEXPERT: Did the lawyers and clients know each other previously? Were the external counsel long-time advisors? Recent hires? How would you describe the working relationship between the different legal teams?
Jeffrey Singer, Stikeman Elliott LLP (for GFL Environmental): We have been GFL’s counsel since inception, so there has been a fairly long-standing relationship. At this point, we almost finish each other’s sentences, and in many respects operate as one integrated team. There can be quite an intensity to many GFL transactions, and this one was certainly no different. Fortunately, there was a great sense of collegiality; so much so that the teams generally chose to eat and laugh together rather than to retreat to our own corners, so to speak. It was exhausting but a lot of fun.
Grahek: We have a long history working with Stikeman Elliott on many of our acquisitions and on other financings and recapitalizations. This familiarity has allowed them to build a strong team that “gets” GFL — what matters to us, as well as the need to get deals done within tight timelines. The dynamic between the deal teams was very constructive. This deal moved quickly. Everyone worked around the clock to get it done well and while we had our battles, in the end, the legal teams worked well together and we had fun.
Guindi: Yes, Stikeman and the company were known to each other as was Osler and BC Partners and OTPP. The working relationship was great. There were robust negotiations with creative solutions brought to bear on some of the complex issues and although at times intense, the negotiations were always respectful with a view of achieving a fair and successful closing.

LEXPERT: With many suitors expressing interest in GFL, why did this investor group stand out?
Grahek: It was a very competitive process. Having worked with different private capital partners in our past, our founder and CEO Patrick Dovigi knew what he was looking for from new partners and BC Partners, Ontario Teachers’ Pension Plan and their other consortium members met all of those criteria. The relationship they built through the process gave him the confidence that our new partners shared his vision and were committed to supporting it.

LEXPERT: What level of coordination was required? What was the timeline?
Singer: Time is never the friend of any transaction, and this one was no exception. We settled most of the agreements within a week and closed within the month. It was a complex deal, with many inter-dependent work streams to be coordinated in a very short time. So there was around the clock activity among principals, investor groups and legal teams to get this across the line.
Guindi: Each legal team had its quarterback who was running various streams inside of his/her firms. Those streams would be similar to most other deals of this sort. … Each of the teams in the different firms coordinated with their respective counterparts to develop the finished product. There was a very short timeline for the due diligence and for signing the definitive agreement — probably the whole thing happened within weeks rather than months. Once the deal was signed we were again able to move quickly from signing to closing.
LEXPERT: How complex was this deal?
Guindi: Because of the size of the deal and the terms of the transaction, it was a relatively complex transaction. The needs of various stakeholders needed to be addressed in a very short timeline. Because we did have both domestic and international participants, various tax and other issues had to be resolved. A number of practice areas were involved including tax, regulatory, corporate, environmental, real estate financial services, insurance, etc.
Singer: There was considerable complexity to the transaction, including the commercial relationship between GFL and the new investor group as you would expect. Layer on top of this tax, regulatory, corporate reorganizations and re-financings (including a US debt offering) and there was no shortage of activity. Even with the least number of hands on deck, it was pretty crowded.

LEXPERT: GFL seems to have a voracious appetite for acquisitions. What can we expect to see going forward for GFL?
Grahek: There is considerable breadth to GFL’s environmental services While we are already one of the largest environmental services companies in North America, we continue to see opportunities for both organic and strategic growth within each of these offerings in both Canada and the US. We will continue to be disciplined in our approach to acquisitions, but as Patrick [Dovigi] says, it’s still early innings.

LEXPERT: Do you see further consolidation in the industry going forward?
Grahek: The environmental services industry is highly fragmented across service offerings and markets and likely will remain so given the local nature of the services provided by industry participants and the breadth of offerings that the sector encompasses. This market dynamic presents opportunities for GFL to continue to do strategic acquisitions in a variety of geographies and services.

LEXPERT: What can you tell me about the deal’s precedent-setting nature?
Guindi: Because it’s a private transaction, it’s difficult to comment publicly, however its clear that due to the expert PE partners that we worked with as well as an exciting target, the parties were quite creative in negotiating the terms.
Singer: While the deal may set a new high-water mark in Canada, the precedential value may be more as an emphatic answer to the question as to the potential for entrepreneurial success in Canada.

LEXPERT: Why was this the right time for such a large deal to close in Canada? Will we see more large transactions of this sort?
Singer: Perhaps private equity views Canada as a somewhat more stable venue for capital deployment. Given the number of significant Canadian companies with the vast amount of un-deployed private capital, there is reason for cautious optimism that we will see more blockbuster partnerships forged in Canada.
Guindi: It was a confluence of circumstances; a very attractive target, a knowledgeable buyer, and a robust process. The market dynamics and participants were ripe for a deal. I think there will be other deals of this magnitude, but they won’t be numerous. There are not many companies of this size in Canada that would be available for a PE play. However, we will and are seeing increased PE activity in smaller transactions across the country and in various sectors.

LEXPERT: What was most memorable about working on this deal?
Singer: As with most deals, the most memorable aspect is generally the people, the feeling of working together under pressure, and the sense of pride in accomplishing something great together.