Bingo Industries play could be just the beginning for private equity

The nation’s waste management sector is set for a shake up as private equity firm and Macquarie Group make the scene.

Bingo Industries CEO Daniel Tartak. Photo by Mark Kolbe/Getty Images

The $2.3bn private equity-led play for waste management company Bingo Industries could drive a shake-up across the entire sector as analysts predict that a privatised company with a stronger balance sheet could rapidly expand its operations.

Bingo shares jumped by 20.4 per cent to close at $3.30 on Tuesday as investors weighed up the response of major shareholders, the Tartak family and one-time competitor turned director Ian Malouf, who sold the company the Dial-a-Dump Industries business.

The CPE Capital approach, backed by Macquarie Group’s Infrastructure arm Macquarie Infrastructure and Real Assets, has been styled as a friendly offer, with the option of the major shareholders staying invested in an unlisted company.

The play comes against the backdrop of the global giant Veolia making a takeover play for rival Suez, which is likely to see some local assets sold off. The Australian Competition & Consumer Commission has received information from Veolia and expects to commence an informal review in early 2021.

Any takeover of Bingo would also come under scrutiny with an ACCC spokeswoman saying that if the sale proceeds, the competition regulator would closely examine the likely effect of the transaction on competition.

The target company is poised to benefit in the short term from the infrastructure-led recovery and attempts to stimulate local manufacturing. But the longer-term shift to more recycling and taking the business national could provide an even larger stimulus.  The fate of the private equity play lies in the hands major shareholders, including chief executive Daniel Tartak with 19.8 per cent and Mr Malouf with about 12 per cent.

Institutions will also have a big say, with the Capital Group and Schroders, at about 9 per cent apiece, also influential. Bingo’s board emphasised it would only accept a takeover offer “on terms that deliver appropriate value for all Bingo shareholders”.

The waste management company on Tuesday said talks were taking place and due diligence access had been granted. The indicative cash price currently offered is $3.50 per share — a substantial premium to Bingo’s Monday closing price of $2.74 — but the shares have yet to hit this mark, indicating some uncertainty remains.

The cash and scrip alternative would be at a lower upfront price but with potential for higher returns over time, contingent on earnings thresholds being hit in the unlisted format.

Mr Tartak’s support will be crucial to the success of the proposal. He has outlined bullish expansion plans in Sydney and called out “structural tailwinds” and a recovery in construction that could see Bingo reach earnings of more than $250m from its existing assets.

He also pointed to further developments in NSW and Victoria, and the company’s eventual entry into Queensland, as driving it beyond this mark.

Morgans analyst Nathan Lead told clients the pricing was within the 20-30 per cent premium expected and implied an earnings multiple of about 20 times. But if Bingo hit $250m of earnings the offer was at about 10 times earnings.

He said the bid came during an earnings trough, with a recovery commencing in 2022, and noted the competition regulator could seek some disposals.

“What will the ACCC think? CPE previously bought Bingo’s Banksmeadow facility, which was a forced divestment resulting from Bingo’s acquisition of DADI. Combining the two may see asset sales being required,” he said.

Mr Lead said CPE and MIRA may want to use Bingo as a platform to bid for assets that may spill out of Veolia’s takeover proposal for Suez to appease competition concerns.