Since going public in March of 2020, GFL’s operational performance has been exceptional. The company has more than doubled both revenue and EBITDA, while taking its leverage ratio down from over 6x to its current ~4x. In growing both its earnings and reducing its leverage, one would expect ample value to be created for shareholders. As impressive as its operating results have been, its stock price performance has been lackluster. Management has taken an admirable, long-term approach to dealing with this. Their approach has been to continue to deploy capital into new platforms and high ROIC tuck-in acquisitions, while culling non-core assets and slowly de-leveraging. Under their current course, they should hit a leverage ratio near 3.5x by year end, which is a level that should assuage any investor concerns about it. To compound the concerns over leverage, the company has a large shareholder, BC Partners, that is slowly exiting its position. This overhang has probably prevented purchases by new investors who do not want to step in front of a large seller. As noted, management has been inclined to let their plan play out over the next year. So, it was a bit surprising that there were reports in early June that the company was reviewing strategic alternatives. Bankers live and die by their fees; it would not surprise me if a banker worked up some alternatives and then leaked them to a reporter to put the company in play. Let’s review each of the alternatives, and the pros and cons of each.
Share this post
Analyzing GFL's Strategic Alternatives
Share this post
Since going public in March of 2020, GFL’s operational performance has been exceptional. The company has more than doubled both revenue and EBITDA, while taking its leverage ratio down from over 6x to its current ~4x. In growing both its earnings and reducing its leverage, one would expect ample value to be created for shareholders. As impressive as its operating results have been, its stock price performance has been lackluster. Management has taken an admirable, long-term approach to dealing with this. Their approach has been to continue to deploy capital into new platforms and high ROIC tuck-in acquisitions, while culling non-core assets and slowly de-leveraging. Under their current course, they should hit a leverage ratio near 3.5x by year end, which is a level that should assuage any investor concerns about it. To compound the concerns over leverage, the company has a large shareholder, BC Partners, that is slowly exiting its position. This overhang has probably prevented purchases by new investors who do not want to step in front of a large seller. As noted, management has been inclined to let their plan play out over the next year. So, it was a bit surprising that there were reports in early June that the company was reviewing strategic alternatives. Bankers live and die by their fees; it would not surprise me if a banker worked up some alternatives and then leaked them to a reporter to put the company in play. Let’s review each of the alternatives, and the pros and cons of each.