Biffa plans to raise £270m towards expansion with stock flotation
Waste management group Biffa has today (15 September) formally announced that it is to offer stock in the company on the London Stock Exchange next month, after a year of speculation about the company’s future.
The company, which had the second largest revenue of any waste management services provider in the UK in 2014/15 with £878 million and manages around 6.6 million tonnes of waste every year, hopes to raise approximately £270 million through the initial public offering (IPO) next month.
Last year, reports emerged that Biffa was seeking takeover bids from the waste industry as well as considering a stock market flotation, with shareholders expecting to make around £950 million – approximately eight times its annual profit – from any sale or stock market move.
Then, in March this year, The Sunday Times reported that a Chinese state-backed waste company and American private equity firm Apollo were among those interested in purchasing the company, with at least one other suitor also in ‘late-stage’ talks about a £1-billion takeover.
However, the waste giant has since refocused on becoming a public company, seeing it as an opportunity to move forward with expansion plans. With this first move into the public stock market, the biggest IPO since the Brexit referendum in June, the company is expected to use proceeds to continue its purchasing of smaller UK waste management operations.
Biffa has acquired 20 waste management businesses since December 2013, most recently the waste collection business of Cory Environmental Group in June for £13.5 million.
UK market on the up
Earlier this year Biffa announced that its underlying pre-tax profits in 2015/16 had grown to £122.3 million, up from £105.1 million the year before, while the first quarter of this financial year produced net revenue 28.7 per cent greater than the same period in 2016.
The group’s services are organised across four operating divisions: industrial and commercial; municipal; resource recovery and treatment; and energy. It serves 2.4 million households and 75,000 industrial and commercial customers, while employing over 7,000 members of staff.
A report prepared by Credo Business Consulting on behalf of the Biffa Group last month deduced that between 2013 and 2015 the volume of controlled waste in the UK had risen yearly by 2.4 per cent, growth driven by ‘increased regulation, including for waste segregation, and heightened complexity of the waste supply chain’. It also said that the value of commercial and industrial and municipal waste markets had increased rapidly over the same period by around 3.7 per cent per year, with a 5.2 per cent growth in the market value of the treatment and disposal of waste.
The directors of Biffa have said that they expect ‘increasing levels of regulation to lead to an increasingly complex waste value chain and continued growth in the UK waste management market in the medium term’.
‘Multiple levers for continued organic growth’
Commenting on the stock market move, Ian Wakelin, Chief Executive of Biffa, said: “These are exciting times for Biffa, one of the UK’s leading waste management businesses. We believe there are multiple levers for continued organic growth and margin expansion in a market underpinned by structural growth drivers which favour Biffa’s service-oriented business model. Moreover, we operate in a fragmented market providing opportunities for further highly synergistic in-fill acquisitions.
“We are successfully implementing a three-pronged growth strategy, centred on growing our market presence, broadening our range of services to meet our customers’ complex needs and driving efficiencies across the business. We look forward to continuing to implement this strategy as a public company.”
Steve Marshall, Chairman of Biffa, added: “Biffa, led by a highly experienced executive team driving a proven growth strategy, has been successfully positioned to leverage the multiple opportunities that lie ahead in the UK market.
“The prize is to further enhance the group’s leading market positions and build significant value for shareholders. We start from a strong base with a robust and resilient business model centred on a well-invested and integrated waste management platform.”
Peel Hunt is acting as lead manager on the IPO, alongside Citigroup and J.P. Morgan as joint global coordinators, joint bookrunners and joint sponsors, while HSBC is acting as joint bookrunner.
Biffa, founded in 1912, was bought from water company Severn Trent plc by three investment firms in 2008 for more than £1 billion.
The three firms, Montagu Private Equity, Global Infrastructure Partners and Halifax Bank of Scotland (private equity division) converted much of the company’s debt to equity and in 2012 sold the business on to four more investment firms: Angelo, Gordon & Co; Avenue Capital Group; Babson Capital Europe Limited; and Sankaty Advisors.
The sale led to a restructuring of the company, reducing Biffa’s debt by approximately 55 per cent, from £1.1 billion to £520 million. The investment groups also provided a £75 million injection into the company to fund a new infrastructure programme.
More information about Biffa can be found on the company’s website.