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Cleanaway (ASX:CWY) share price on watch: Deal trashed

The Cleanaway Waste Management Ltd (ASX: CWY) share price will be on watch today after its proposed acquisition of Suez Australia’s recycling and recovery business was trashed by Veolia.

What happened to the acquisition?

At the time of the first announcement, Cleanaway warned that the proposed acquisition could be terminated, particularly if there was a takeover of the parent Suez business by Veolia. In that case, Cleanaway would acquire certain post collection assets in Sydney – two landfills and five transfer stations.

Well, the Veolia takeover is seemingly going to go ahead with an in-principle agreement reached between the two European companies.

Management expects that the Suez R&R acquisition will be terminated some time over the next few weeks. But it’s still expecting that the Sydney acquisition will go ahead.

Cleanaway’s Sydney acquisition

This acquisition includes Suez’s putrescible (which means things that decay) and inert landfills, and five transfer stations across the greater Sydney basin.

The ACCC will need to give its approval for the acquisition, considering Cleanaway is already a large operator.

Cleanaway forecasts that using the expected pro forma throughput rates, the landfills are expected to have more than 15 years of available airspace, whilst the transfer station network will service Sydney for the foreseeable future, including Cleanaway’s potential ‘energy from waste’ facility in Western Sydney.

The inert landfill at Kemps Creek is well positioned to benefit from major infrastructure projects.

One of the main benefits of this acquisition is that it will give Cleanaway an immediate post collections solution for the Sydney region to internalise its waste.

In the 2020 calendar year, the Sydney assets generated net revenue of $193.1 million and ‘normalised’ EBITDA (EBITDA explained) of $72.9 million.

Summary thoughts on Cleanaway’s deal

It’s a shame that Cleanaway’s main plan has fallen through. However, this is still a solid acquisition and it expands Cleanaway’s market reach further.

Cleanaway is an interesting business and could be a decent defensive idea for the long term. Demand for recycling is only increasing, which should benefit the business. I do have my eye on some ASX growth shares that may be able to deliver stronger organic growth over the long term.

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