KKR to buy recycling group Viridor in £4.2bn deal

One of the first large acquisitions to be agreed since coronavirus pandemic rocked global markets

KKR is to buy UK recycling company Viridor in a £4.2bn all-cash deal, marking one of the first large transactions to be agreed during the market turmoil triggered by the coronavirus pandemic.

The deal values Viridor, a division of FTSE 250-listed water and waste company Pennon Group, at 18.5 times its earnings in the year to March 2019.

The acquisition by KKR’s infrastructure fund comes at a time when global M&A has ground to a near-halt as markets are roiled by the impact of the virus outbreak. Many dealmakers are unable to attend in-person meetings for due diligence and debt markets are struggling.

Viridor is “incredibly resilient, incredibly defensive and supported by long-term contracts with local authorities,” said James Gordon, a member of KKR’s European infrastructure team.

The private equity firm said it has a “very interesting opportunity to grow the business and . . . generate more sustainable waste treatment options for the UK,” he said.

Pennon Group’s shares closed up 3.5 per cent at £11.23.

The group decided to proceed with KKR’s offer despite having higher rival bids because it was the most certain in the current climate, said two people familiar with the matter. Banks have agreed to finance the debt for the deal, a person familiar with the matter said.

The company will be relatively sheltered from the effects of the pandemic because of its long-term contracts with local authorities, which last as long as 25 years, the people said. KKR could potentially own the business for the next 15 years.

Viridor, which has 1,200 employees, operates recycling, energy-from-waste and landfill facilities and runs a waste collection service. It has been for sale since September when the company announced a strategic review.

The deal values Viridor at £4.2bn and Pennon expects net cash proceeds of £3.7bn after taking account of costs and debt, it said in a statement.

It will use this to reduce its debt, pay shareholders and hold back some funds for future investment, it said, adding that KKR may pay it a further £200m “contingent on future events and outcomes”.

Last year Viridor reported pre-tax profit of £88m on revenues of £852m.

It is one of the largest deals in the water sector since Australian infrastructure bank Macquarie sold its 26 per cent stake in Thames Water for £1.35bn in 2017. Two investors in Yorkshire Water, which supplies water and sewage services to about 5m people and 130,000 businesses, have been trying to sell their stakes since 2017 but have failed to strike a deal.

Colm Gibson, managing director at Berkeley Research Group, said it was part of a long-term trend for water companies to “slim down and focus on their core business”.

The transaction, which Pennon’s board has approved, is expected to complete this summer subject to shareholder and regulatory approvals.

Barclays and Morgan Stanley advised Pennon on the deal.

Source: Financial Times

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