KKR to buy Viridor for £4.2bn

June 2020 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

June 2020 Issue

In one of the first large acquisitions to be agreed since the coronavirus pandemic hit global markets, water utility and waste management company Pennon Group Plc has agreed to sell its recycling and residual waste business Viridor to investment firm Planets UK Bidco – a new company established by funds advised by US global investment firm Kohlberg Kravis Roberts (KKR) – in a deal valued at $4.2bn including debt.

Pennon has stated that the sale of Viridor will be done on a cash-free, debt-free basis. There is also the potential for additional consideration of up to £200m contingent on future events and outcomes. The Pennon board – which unanimously agreed the transaction – intends to use the deal’s £3.7bn net cash proceeds to reduce its borrowings and make a return to shareholders, while retaining some funds to pursue operational excellence and growth within the UK water industry.

A company at the forefront of the resource sector in the UK, Viridor transforms waste into energy, high-quality recyclates and raw materials. It provides services to around 150 local authorities and major corporate clients, as well as around 32,000 customers across the UK. Viridor has operated in the waste sector since the early 1990s and has developed complementary activities that deliver efficient and sustainable waste solutions with unique competitive advantages.

Furthermore, Viridor is a partner of choice for waste management in the UK, with strong brand recognition and a reputation for operational excellence and innovation. Viridor’s market-leading position ensures that it is given priority from suppliers across the entire waste value chain.

Over a number of years, Pennon has supported the strategic development of Viridor with its operationally diversified and complementary portfolio across the waste hierarchy. Significant investment in the development of its energy recovery facility (ERF) portfolio has positioned Viridor as a leader in the recycling and residual waste management sector.

It is from this strengthened position that the Pennon board considered a range of options for the Pennon Group and, following a review of its strategic focus, growth options and capital allocation in September 2019, unanimously agreed that the transaction is in the best interests of shareholders and other stakeholders.

“Following a detailed review of the Group’s strategic options, we are pleased to announce the proposed sale of Viridor for an enterprise value of £4.2bn,” said Chris Loughlin, chief executive of Pennon. “The transaction is great news for shareholders as it recognises the strategic value that Pennon has developed and nurtured in Viridor over many years and accelerates the realisation of that value for shareholders.”

Acquirer KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic partners that manage hedge funds. The firm has more than $200bn in assets under management (AUM).

Expected to complete in summer 2020, the transaction is conditional on approval from Pennon shareholders, merger control clearance from the European Commission and certain other conditions. Morgan Stanley is acting exclusively as sponsor, financial adviser and corporate broker to Pennon.

Mr Loughlin concluded: “On completion of the transaction, Pennon will continue to focus on its sector-leading water and wastewater businesses and will consider further growth opportunities that create value for customers, employees and shareholders.”

Fraser Tennant