GFL to Divest Infrastructure Division; Looks to M&A in 2022

In an effort to differentiate business segments and maximize long-term value, GFL Environmental Inc. (NYSE: GFL) announced it will divest its Infrastructure Division.

The news came during the company's Q4 earnings call, which provided details of the arrangement and a look into the Vaughan, On.-based 2022 plans.

"The collective equity ownership of our management team far exceeds that of any others in our industry," Patrick Dovigi, founder and CEO, GFL. "And I believe that alignment drives a relentless focus on long-term value creation."

GFL's 2021 revenue was $5.5 billion, up 31.7 percent year over year, which was attributed to strong organic growth and acquisition activity. Full-year adjusted EBITDA reached $1.46 billion, or a 35.9 percent increase. Adjusted net income was $155.1 million for the year. 

The company expanded its adjusted EBITDA margin by 80 basis points to counteract inflationary cost pressures. The solid waste line of business saw robust movement, with adjusted EBITDA growth of 90 basis points, or 30.9 percent.

Despite positive growth, the pandemic remained an operational obstacle. Dovigi cited the spread of the Omicron variant at the end of December as a deterrent toward cash collection at the end of the year.

Required repayment of 2020 payroll taxes, which were deferred under the CARES act, resulted in a $10 million hit to GFL's working capital. However, GFL's adjusted free cash flow for 2021 topped $540 million, representing more than 50 percent growth year over year.

Acquisitions and Rolling Off Infrastucture

On par with the industry, GFL's acquisition activity boomed, with the company doling out $2.3 billion for 46 acquisitions throughout the year. In Q4 2021, the company completed 17 of those acquisitions for a total of nearly $1 billion. Annualized revenues for 2021 acquisitions are expected to generate nearly $785 million.

Luke Pelosi, GFL CFO and executive vice president, noted $115 million in new and material upgrades needed for existing recycling facilities which the company plans to fund with proceeds from 2021. 

"We start the year with nearly $200 million of cash on hand and  adrawn revolver, which we think is an ideal setup, providing maximum optionality as we evaluate growth opportunities for 2022," he commented.

The acquisition of Coco Paving Inc. is the catalyst for the divestiture of GFL Infrastructure from the company's solid waste segment in 2022. The move is intended to create a "leading infrastructure services growth vehicle." The transaction is expected to be completed in Spring 2022.

“The spin-off of GFL Infrastructure is part of GFL’s ongoing strategy to rationalize our balance sheet to maximize the value of our asset base,” said Dovigi. “We believe that our investment in the combined complementary businesses of GFL Infrastructure and Coco through Green Infrastructure Partners will result in greater value creation for our shareholders than GFL Infrastructure’s value contribution within GFL. Post-divestiture, we continue to see lots of opportunity to leverage the greater weighting in our solid waste segment both organically and through accretive acquisitions. This will also increase the comparability of our business mix with our publicly traded peers.”

With operations in Ontario, Quebec, Manitoba and Saskatchewan, Coco manages 250 aggregate sites, 33 asphalt plants, eight concrete plants and one of Canada’s largest asphalt cement terminals.

As a result, the acquisition will create Green Infrastructure Partners Inc. (“GIPI”). According to GFL, its soil remediation division will be folded into its liquid waste segment, rebranding as "environmental services." The company's 2022 financial reporting will exclude GFL Infrastructure.

Q4 Highlights

Revenue: $1.59.5 billion - up 24.6 percent
Adjusted EBITDA: $388.3 million - up 24.8 percent
Adjusted Net Income: $25.9 million
Annualized Revenue from Acquisitions - Full Year: $785 million

2022 Outlook

Revenue: $6.265 billion - $6.365 billion
Adjusted EBITDA: $1.690 billion - $1.730 billion
Adjusted Free Cash Flow: $665 million and $695 million
​​​​​