Biffa buyout announced

After months of speculation about its fate, Biffa announced yesterday (29 November) plans to restructure and refinance. The three investment firms that bought Biffa for more than £1 billion in 2008 – Montagu Private Equity, Global Infrastructure Partners and Halifax Bank of Scotland (private equity division) – have converted a large proportion of Biffa’s debt to equity and sold the business to four more investment firms: Angelo, Gordon & Co; Avenue Capital Group; Babson Capital Europe Limited; and Sankaty Advisors.

Following restructuring, the new investors will become Biffa’s majority shareholders. Angelo, Gordon & Co is a New York-headquartered investment advisor, which currently manages US$25 billion (£16 billion) in investments and is ‘dedicated to alternative investment’. Avenue Capital Group, meanwhile, is another American global investment firm, which classes itself as ‘[a pioneer] in the distressed debt market’. Babson Capital Europe Limited specialises in the European leveraged buyout field, and Sankaty Advisers is the credit affiliate of private-equity firm Bain Capital, co-founded by 2012 US Presidential candidate Mitt Romney. 

The move will see Biffa’s debt reduced by approximately 55 per cent, from £1.1 billion to £520 million. Biffa’s high levels of debt had resulted in the company facing significant trading issues as creditors sought to limit exposure to risk. Despite operational profits last year of £150 million, industry experts considered that restructuring its debt was essential for the long-term health of the company.

Cash injection

The new shareholders have also indicated they will immediately inject £75 million into the business, which, according to the company statement, ‘will be used to fund a new infrastructure programme designed to reinforce the Company’s position as a leading force in collection, recycling and technologically-led waste recovery’.

The statement goes on to explain that ‘the proposal has support from a substantial majority of Biffa’s senior lenders and the Company plans to conclude the process in early 2013’. 

‘Long-term financial stability’

Ian Wakelin, CEO of Biffa, said: “We are delighted to announce this important milestone towards the financial recapitalisation reaching a successful conclusion. The recapitalisation will provide the company with significant new investment, bring long-term financial stability to Biffa, and provide an excellent platform to move forward as we grow and develop the business further.”

A spokesperson for the new shareholders added: "We are pleased to have supported the company throughout this process and provide the new investment to further strengthen Biffa’s position for the future. Through the expertise of our people, we look forward to completing the recapitalisation of Biffa and then working with management to enable the business to progress and grow.” 

Speaking to Resource, a spokesperson for Biffa confirmed that there will be no major restructuring of the management team as part of the deal, adding: “There’s a business plan in place that the businesses put together, and it’s just a case of putting heads down and delivering against that.”

‘Outsourcing bonanza’

Though the new investors say they aim ‘to enable the business to progress and grow’, some commentators are wary of the intentions and impact of such multinational firms. Writing in the Guardian in October, Lindsay Mackie, a consultant for the New Economics Foundation, said of the initial outsourcing of Biffa: ‘This situation is an object lesson in faulty economics, lack of democratic power, political blindness and a complete lack of solutions to an increasingly common problem – the hijacking of the real economy by financial pirates, often based offshore.’ She added the situation ‘is an awful warning amid the great outsourcing bonanza about to occur under the coalition's "austerity" programme’.

Mackie went on to call for greater regulation, transparency, and drive to keep investors onshore. She questioned: ‘Where are the political talks about how to stop any venture capitalist from plucking a good outsourcing company – Biffa – with a contract to deliver X and turning it into a debt-laden company only offering Y to an impoverished local authority with no expensive legal expertise to challenge the new owners?’