What has Cleanaway announced?
Cleanaway has said that it has entered into an agreement with Suez to acquire the recycling and recovery business in Australia for $2.52 billion.
The acquisition is subject to financing and a number of other conditions.
There’s also the issue of the offer by Veolia Environnement (EPA: VIE) to buy the whole Suez business. So Cleanaway and Suez have agreed that Suez may terminate the Suez R&R Australia acquisition by 6 May 2021 if there is an announcement of an agreement in principal for a takeover of Suez, and by 26 April 2021 if a superior offer comes in for Suez R&R Australia and is not matched by Cleanaway.
If the above dates pass and the deal isn’t terminated, then Cleanaway will do a capital raising to partially fund the transaction, as well as additional debt facilities. You can learn all about capital raisings in the video below.
If Suez is seemingly going to be taken over by Veolia, then Cleanaway will acquire a portfolio of post collection assets in Sydney. This includes two landfills and five transfer stations for $501 million, again subject to various conditions.
So what is Suez R&R Australia?
It operates a national footprint of strategically located prized infrastructure assets – it has over 2,000 employees, six operating landfills including a hazardous waste landfill, 59 collection and depot facilities, eight organics organics processing facilities and two medical waste facilities and a fleet of more than 1,000 vehicles.
In the 2020 calendar year, the business generated $1.4 billion of revenue, $216 million of normalised EBITDA (EBITDA explained) and $199 million of operating free cashflow.
The acquisition is 11.7 times the normalised 2020 EBITDA before synergies. Cleanaway expects to be able to make $70 million of annual cost synergies, which are expected to be realised by FY25.
Thoughts about this deal
Scale is important in the sector, so this would give Cleanaway a much stronger hand nationally. It seems like it would be a very good deal, though it’ll be interesting to see if the ACCC has anything to say about it.
I’d be interested in a long term buy of Cleanaway. Compared to other ASX growth shares, Cleanaway has a good defensive profile with its collections and processing. The growing demand for recycling should also be a benefit. Before this announcement, the Cleanaway share price was valued at 22 times the estimated earnings for the 2023 financial year.