GFL Environmental: Running the Take-Private LBO Math

Research evidence excerpt

GFL Environmental: Running the Take-Private LBO Math

CEO Patrick Dovigi rolls his existing economic

interest into the private entity. Based on an estimated ~2.6% economic ownership

interest, we estimate approximately C$860MM of rollover equity.

• Returns and feasibility. We calculated sponsor returns by applying projected upstream

FCF, after HoldCo interest expense, toward annual repayment of the acquisition debt.

Under our forecasts, HoldCo debt declines from approximately C$15.4B at entry to C

$13.2B after five-years, while consolidated debt-to-EBITDA declines from

approximately ~8.3x to ~5.9x. We assumed a ~12x exit multiple, modestly below the

approximately ~14x entry multiple. Under these assumptions, the transaction generates

an approximate ~9% five-year sponsor IRR and ~1.5x MOIC, with five-year IRRs

increasing to approximately 11%–14% under a 12.5x–13.5x exit multiple sensitivity (see

Figure 2). Our sensitivity analysis shows that the entry price drives sponsor returns more

than the holding period or modest changes in the exit multiple. For instance, at a US$50/

share takeout price, we calculate sponsor IRRs would range from ~5-14% over five-years

across 12.0-13.5x exit multiples, highlighting the difficulty of generating traditional

buyout returns at that valuation. Although the transaction appears financeable under our

base-case assumptions, a full entry valuation, retained OpCo debt and limited

deleveraging would result in five-year IRRs that compare less favorably with returns

typically sought in traditional buyout transactions. Our analysis suggests that the

transaction would likely require a lower entry valuation, greater operational upside, a

longer investment horizon, or a long-duration capital vehicle (i.e., open-end fund) to