This announcement contains inside information
21 May 2021
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.
INVESTOR PRESENTATION
Further detail about the acquisition will be given during a presentation webcast from Biffa management, today, 21 May 2021, at 09.30hrs.
The webcast details are available on Biffa's website: www.biffa.co.uk/investors. If you prefer to dial-in to the webcast by telephone, you can do so using the following lines:
· United Kingdom: 0800 640 6441
· United Kingdom (Local): 020 3936 2999
· United States: 1 646 664 1960
· All other locations: +44 20 3936 2999
Access code: 748986
NOTES
* via the acquisition of Syracuse Waste Limited ("Syracuse"), a special purchase vehicle established to facilitate the acquisition of the Collections business and certain Recycling assets from Viridor Waste Management Limited
Syracuse's unaudited results for the FY20 year (extracted from the audited Viridor Waste Management Limited accounts), include Revenue of £141.9m, Profit Before Tax of £4.0m and Gross assets of £109.9m.
ENQUIRIES:
Biffa
Investors & Analysts
Michael Topham, Chief Executive Officer or Richard Pike, Chief Financial Officer
Media
Houston
0204 529 0549
biffa@houston.co.uk
Financial Advisers:
HSBC Bank plc and Rothschild & Co acted as joint Financial Advisers to Biffa.
Cautionary statement regarding forward-looking statements
This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the Company's business. Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.
The forward-looking statements contained in this document speak only as of the date of this announcement, and Biffa does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
HSBC Bank plc ("HSBC"), which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority, is acting as financial adviser to Biffa and no one else in connection with the matters described in this Announcement and will not be responsible to anyone other than Biffa for providing the protections afforded to clients of HSBC, or for providing advice in connection with the matters referred to herein. Neither HSBC nor any of its group undertakings or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of HSBC in connection with this Announcement or any matter referred to herein.
N. M. Rothschild & Sons Limited ("Rothschild & Co"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as financial adviser to Biffa and no one else in connection with the matters described in this Announcement and will not be responsible to anyone other than Biffa for providing the protections afforded to clients of Rothschild & Co nor for providing advice in connection with the contents of this Announcement or any transaction, arrangement or other matter referred to herein.
About Biffa
Biffa is the UK's leading sustainable waste management company and has been at the forefront of the UK's waste industry for more than a hundred years.
Our operations span the breadth of the waste management process including collection, reuse, recycling, treatment, disposal and energy generation. We're the largest manager of business waste in the UK and our team of over 8,000 employees collect, recycle and recover waste from 95% of UK postcodes.
Our purpose is 'to change the way people think about waste'. Sustainability is therefore right at the heart of our business. We have made huge strides in our sustainability journey by investing in much-needed green economy infrastructure and low carbon collections, leading to a 65% reduction in our carbon emissions since 2002. Our sustainability strategy 'Resourceful, Responsible' focuses on the key areas where we know we can make a difference: building a circular economy, tackling climate change and caring for our people, supporting our communities.
Put simply, our people matter. We are an industry leader in health, safety and wellbeing as well as putting diversity and inclusion front and centre of our culture. We're also keen to give back and improve the waste management sector. Our Biffa Award programme supports sustainable projects in the UK and our long-standing relationship with WasteAid supports third world countries with managing their waste more sustainably.
Biffa is a Great British Company listed on the FTSE 250 index of the London Stock Exchange. That's just a bit about us. To find out more, visit: www.biffa.co.uk/investors
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