Casella to acquire select solid waste operations from GFL Environmental

Casella Waste Systems Inc., a Rutland, Vermont-based regional solid waste, recycling and resource management services company, has announced the signing of an equity purchase agreement to acquire collection, transfer and recycling operations in Pennsylvania, Delaware and Maryland from Vaughan, Canada-based GFL Environmental Inc. for $525 million.

The proposed acquisition includes nine hauling operations, one transfer station and one material recovery facility with aggregate annualized revenues of approximately $185 million. The acquisition is expected to close by the third quarter of 2023, subject to customary closing conditions, including regulatory approvals.

“Today’s announcement marks an important step forward in [Casella’s] growth strategy by using the strength of our balance sheet and proven capital discipline to make a compelling investment,” Casella Waste Systems CEO John W. Casella says. “After successfully extending our footprint into the adjacent Connecticut market with an acquisition in mid-2021, this acquisition will enable us to expand into the Mid-Atlantic region with these well-run solid waste operations that provide a platform for future growth.

“We have worked with the GFL team to conduct extensive due diligence and to start a collaborative integration and transition planning process. Over the last five years, we have built a strong team focused on successfully integrating and driving returns from acquisitions. In addition, our existing team includes several talented professionals who have experience with these specific operations and markets, which provides us even more confidence around a successful integration process to drive further shareholder returns.”

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According to a news release, the pending acquisition of solid waste assets is a natural extension to the company’s existing footprint in the Northeast and offers future organic and inorganic growth opportunities.

In addition, the operations and transaction structure are expected to provide solid financial benefits that will help to drive continued strong cash flow growth. Casella expects the acquired operations to generate approximately $185 million in revenues and $43 million of EBITDA during the first 12 months.

Casella also expects to generate approximately $8 million of incremental annual synergies and benefits by year three of operations through internalizing certain volumes into its disposal network and capturing fleet automation efficiencies. Further, given the structure of the transaction, the company says the acquisition could create significant cash tax benefits to Casella, estimated to be greater than $130 million in savings over a multi-year period.

Approximately 80 percent of the revenue to be acquired is generated in the open market from commercial collection and subscription residential collection customers. Further, approximately 5 percent of the revenues to be acquired are currently generated from construction and development activity which is expected to further reduce exposure to more cyclical and event-driven lines of business on a consolidated pro forma basis, Casella says.

The acquisition is not subject to any financing conditions, and Casella says it expects to fund the purchase price through a combination of cash on hand, revolving credit facility borrowings and from a planned new Term Loan A under its existing senior secured credit facility. Casella received a bridge financing commitment from Bank of America, BofA Securities Inc., JPMorgan Chase Bank, Comerica Bank and Citizens Bank.

Following the completion of the acquisition, Casella says it expects to maintain a strong credit profile and balance sheet, with its consolidated net leverage ratio expected to increase to approximately 3.59 times pro forma based on Dec. 31, 2022, historical financials for Casella.

Casella says it remains committed to reducing its consolidated net leverage ratio to below its target of 3.25 times as per its 2024 Strategic Plan announced last February.