Opinion

Biffa: A rubbish buyout?

Source: UK unquote | 04 Dec 2012
The highly leveraged buyout of Biffa has flopped resulting in a debt-for-equity swap to keep the company afloat

The saga of beleaguered waste management company Biffa was finally brought to an end last week with the agreement of a debt-for-equity swap. Such a classic tale of an over-leveraged private equity deal going sour is, as ever, popular with the papers, but how did things get so bad at Biffa?

Montagu Private Equity and Global Infrastructure Partners (GIP) bought Biffa back in May 2008, at the height of the buyout boom and just months before the global economic meltdown that proceeded the collapse of Lehman Brothers. It's thought the business was bought for around £1.7bn, using a £1.1bn debt package. At around 65% leverage, the debt element of the deal was not particularly notable – it was not unusual to see 75% leveraged deals at the time – though it may seem high by today's standards.

The recession took its toll of course, though it might not have been initially obvious how Biffa would be affected by the state of the economy. After all, waste is produced and still needs to be dealt with regardless of recession, and one would expect a business in this field to be more resilient to macroeconomic factors than, for example, a retailer or car manufacturer.

However, Biffa didn't bank on one major development, its customers seeking to reduce the amount of waste they produce. For many firms struggling in the new economic reality, aggressive cost-cutting was the name of the game, and reducing the amount of waste produced not only reduced the amount of money spent on waste management but also helped firms to comply with green legislation.

Recycling has also been a problem for Biffa. The firm could have led the way in Britain given it already had a major presence in the UK waste management business. Montagu and GIP certainly tried to push the business in this direction, acquiring recycling specialist Greenstar UK in the summer of 2010. However, many industry commentators say Biffa was too late to the party, and remained too reliant on its landfill operations, which are becoming increasingly expensive to maintain as the UK government imposes ever stricter regulations.

Of course, while the above issues certainly didn't help Biffa, its crippling debt was proving highly detrimental to the business. With revenues of around £1bn, its £1.1bn debt package was simply unsustainable. The debt-for-equity swap will see its total debt reduced by around 55% to a more manageable £520m, alongside a £75m cash injection from senior lenders Angelo Gordon & Co, Avenue Capital Group, Babson Capital Europe and Sankaty Advisors. The business remains profitable and the debt writedown should aid its recovery. Nontheless, it remains a reminder of how a short-sighted leveraged buyout can sometimes be crippling for a business.

Visitor Comments

 

Add your comment

We won't publish your address
By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication.

search unquote.com

Industry news

EQT frontrunner for Siemens' hearing aids

Deal could be one of the largest of 2014

Nordic unquote

| 31 Oct 2014 | secure

Advent, EBRD in potential partnership to buy Hypo SEE

Potential sale of Balkan bank network still in early stages

CEE unquote

| 31 Oct 2014 | secure

EY poaches two Deloitte partners

Ali and Bürger to join operational transaction services team

unquote

| 30 Oct 2014 | secure

Altium’s Hinderer steps down

Altium managing director and board member Hinderer is stepping down

unquote

| 30 Oct 2014 | secure

Updating your subscription status Loading

People

Alex Di Santo of Elian Fund Services

Alex Di Santo, Elian Fund Services

Di Santo has worked on fund administration at Elian for seven years

More people news

Nicolas Debock of Balderton Capital

Nicolas Debock, Balderton Capital

Balderton increases focus on France through appointment of Debock

More people news

Paul Skipworth of L Capital

Paul Skipworth to lead London office

More people news

Stephen Delaney of Bowmark Capital

Stephen Delaney, Bowmark Capital

New investment director Delaney previously Darwin Private Equity principal

More people news

Jake Warman of Sovereign Capital

Jake Warman, Sovereign Capital

Appointments follow firm's £395m fund close in August

More people news

Events

event

unquote" Italia Private Equity Forum

Date: 12 Nov 2014
Location: Milan, Italy
event

Forum unquote” Italia sul Private Equity

Date: 12 Nov 2014
Location: Milan, Italy

Email Alerts