KKR linked to an acquisition of Suez’s Australian portfolio

Should Veolia buy Suez, it would probably need to sell landfills and transfer stations in Sydney

At least one major private equity firm is understood to have considered an acquisition of the Australian portfolio of Suez, with one of the interested suitors believed to have been Kohlberg Kravis Roberts.

This is before Cleanaway reached a deal to potentially buy the local business of Suez for $2.52bn, as announced by the company on Tuesday.

The understanding is that the local adviser for Suez, RBC, tested private equity interest to determine if there were parties prepared to pay a higher price for the assets than Cleanaway.

However, sources say the challenge for private equity with respect to the business is that a buyout fund would need to find a new management team to run the operations, whereas Cleanaway’s own management would take over the task.

As announced on Tuesday, Cleanaway made an agreement at the weekend to buy the Australian business of Suez, which is based in Paris.

The deal includes the option for Suez to cancel the transaction if it agrees to accept a takeover offer by its suitor and major French rival Veolia by May 6, and by April 26 if a superior offer for Suez Australia is made and not matched by Cleanaway.

Veolia is offering to buy Suez for €18 a share, or about £11.2bn ($17.3bn), but Suez is understood to see a price of about €22.50 a share as being more appropriate.

The latest agreed deal with Cleanaway values the Australian operation at 11.7 times its 2020 earnings before interest, tax, depreciation and amortisation, whereas the Veolia offer values Suez at eight times EBITDA.

Cleanaway had been talking with Suez about buying its Australian business before the French company received an approach from Veolia last year.

The latest Cleanaway deal is a good defensive play for Suez, with the strong price achieved for what is only about 15 per cent of its operations globally demonstrating that it is within reason to ask Veolia to lift its offer.

It is understood that Suez considered selling other operations globally, but knew that it had a motivated buyer in Cleanaway for its Australian arm.

In the event Suez does cancel the $2.5bn sale to Cleanaway, it will instead sell the Australian-listed waste company two landfills and five transfer stations in Sydney for $501m.

Should Veolia buy Suez, it would probably need to sell landfills and transfer stations in Sydney to appease the Australian Competition & Consumer Commission, given both groups are dominant landfill owners in NSW.

The transaction with Cleanaway is also by no means a done deal, because the French courts could rule that the transaction does not comply with its takeover laws.

But the potential $2.5bn acquisition is a compelling one for Cleanaway given that the transaction would create $70m in annual cost synergies realised by the 2025 financial year, and it is at a time when Cleanaway’s NSW landfill reaches the end of its capacity. It needs additional landfill in NSW and elsewhere to deliver on its strategy to provide a full suite of waste collection and disposal services.

Suez has six operating landfills in Australia and 59 collection and depot facilities. The business generated $216m of earnings before interest, tax, depreciation and amortisation last year.

The transaction has been put together as Cleanaway’s Australian rival Bingo Industries is the subject of buyer interest from at least one suitor.

CPE Capital with Macquarie Infrastructure and Real Assets are offering to buy the business for $2.3bn, but also looking at Bingo is Keppel Corporation, advised by Rothschild, and a European trade player.

Some industry sources question whether the European industry suitor is Germany’s Schwarz Group, which last year purchased $US3.5bn worth of European waste management assets from Suez.

Working for Cleanaway has been Greenhill, Macquarie Capital and law firm Gilbert + Tobin.