The Cleanaway Waste Management Ltd (ASX: CWY) share price has returned from the Easter break in cracking form, following the announcement of Cleanaway and Suez entering an agreement for the former to acquire the latter.
At the time of writing, the waste management company's shareholders are cleaning up as the Cleanaway share price rallies 9.77% to $2.42 per share.
Details of the deal
The agreement entered yesterday relates to Cleanaway acquiring the Australian recycling and recovery business of France-based Suez. Cleanaway's proposal for Suez R&R Australia values the business at $2.52 billion.
Finalisation of the buyout is conditional on a few line items. Firstly, the proposal will need regulatory thumbs up from the likes of the Australian Competition and Consumer Commission (ACCC) and the New Zealand Overseas Investment Office (OIO).
Secondly, Cleanaway will need to successfully finance the transaction (more on that later). Lastly, the acquisition is highly dependent on Veolia's next move. Suez has the ability to terminate the deal with Cleanaway if Veolia was to lob a higher bid.
If all conditions are met after 26 April 2021 without termination, Cleanaway plans to tap the market to partially fund the transaction. Furthermore, the company will utilise additional debt facilities to finance the deal.
Cleaning up a portfolio of assets
Separately, Cleanaway has also agreed to scoop up a portfolio of strategic post-collection assets in Sydney. These include 2 landfill sites and 5 transfer stations, which would total $501 million. A combination of equity and debt is proposed for the funding of the Sydney assets.
Meanwhile, the core R&R transaction will add a workforce of more than 2,000 employees, 59 collection and depot facilities, 6 operating landfills, a fleet of more than 1,000 vehicles – among other assets.
According to the release, the Suez R&R Australia acquisition will add further scale and scope to create operating leverage and avenues to accelerate growth. Additionally, the proposed acquisition price represents an 11.7 multiple on normalised CY20 earnings before interest, tax, depreciation, and amortisation (EBITDA)
Cleanaway comments as share price gains
Cleanaway chief operating officer Brendan Gill commented on the proposed acquisition:
Importantly, there is also strong alignment of operating approaches. The transaction is expected to bring together two highly complementary businesses and be strongly accretive to earnings per share when the integration is completed.
Cleanaway will continue to maintain a strong balance sheet following whichever transaction is completed and will retain ample capacity to support future growth for the combined group.
The comments reflect the optimism in the markets today, as the Cleanaway share price lifts. If the company can successfully integrate Suez the way it has with Toxfree solutions, further growth could be on the horizon.
Cleanaway executive general manager of strategy, mergers, and acquisitions, Frank Lintvelt, touched on this with his comments:
Following lengthy discussions that first commenced in April 2020, we are pleased to have entered into an agreement with Suez.
With the successful acquisition and integration of ToxFree completed, which created significant value for shareholders, our team is well placed to manage the combination of Cleanaway's business with Suez's Australian Resource and Recovery business.
Accounting for the increase in the Cleanaway share price, the company's market capitalisation is now $4.53 billion.
