Macquarie agrees €2.4bn Suez deal

November 2022 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

November 2022 Issue

French utility company Veolia has agreed to sell Suez’s UK waste business to Australia’s Macquarie Group in a deal worth around €2.4bn. The sale is part of Veolia’s efforts to resolve antitrust concerns around its protracted €13bn acquisition of rival Suez in 2021.

The completion of the Suez transaction will allow Veolia to effectively address the main concerns of the UK Competition and Markets Authority (CMA), which must still approve the deal, and to the right of first refusal granted by Veolia to the new Suez at the time of the combination in 2021. Following completion of deal, Veolia will remain a major player in the UK waste management market with revenues of approximately €2bn.

Suez UK is a significant UK waste management business which handles more than 9 million tonnes of domestic, commercial and industrial waste and is the UK’s first producer of biomethane transport fuel made from landfill gas. Suez UK’s landfill sites account for about three percent of the UK’s renewable energy generation. The company employs 5700 people and handles 12 million tonnes of waste annually.

The valuation level of the sale of the Suez business, showing a multiple of 16.9 times normalised earnings before interest, taxes, depreciation, and amortisation (EBITDA) for 2021, is significantly higher than the acquisition price resulting from the takeover bid.

After the disposal of the remedies agreed with the European Commission and the agreement with Macquarie Asset Management, almost all of the antitrust divestitures will have been finalised less than a year after the acquisition of Suez, the company noted in a statement. The disposals, amounting to a total of €3.4bn – including in Australia where ASX-listed Cleanaway spent $501m buying the Sydney assets of Suez and Germany’s Remondis acquired assets in three states after the Australian Competition and Consumer Commission insisted on asset sales – would also result in a major reduction in Veolia’s debt leverage.

Macquarie Asset Management is building a new €9bn European infrastructure fund that will take full control of Suez Recycling and Recovery UK Group, unless a rival consortium exercises its right to gazump the deal with a matching bid. The rival consortium, which includes Meridiam, Global Infrastructure Partners and Caisse des Depots Group, is not expected to launch its own bid for Suez UK.

Macquarie will complete the deal for Suez with capital from its new regional fund, the Macquarie European Infrastructure Fund 7 (MEIF 7). If fundraising for MEIF 7 reaches its €9bn target, it will be the largest of its kind that Macquarie has built in Europe. In 2021, Macquarie used its €6bn MEIF 6 vehicle to buy Irish waste recycler and processor Beauparc Utilities, which has 40 facilities processing 3 million tonnes of rubbish per year. Macquarie is no stranger to the waste businesses, completing deals in the US, Brazil and Australia over the last 15 years.

“We are very satisfied with this transaction, which is being carried out under excellent conditions that once again demonstrate the attractiveness of the environmental services business and the relevance of our proposal for remedies to the CMA,” said Estelle Brachlianoff, chief executive of Veolia. “It will create significant value and strengthen our investment capacity in strategic markets. The valuation of these assets reflects both the initial price and the synergies expected from the combination, in line with all of the disposals carried out in the frame of the antitrust clearances, which are higher than the acquisition price of Suez. Following this transaction, Veolia will remain a major player in the waste sector in the United Kingdom and, more broadly, in the environmental services market in the region, which remains strategic for the Group.”

“We are very pleased that Veolia has agreed a deal in principle with Macquarie Group Ltd for the sale of SUEZ Recycling And Recovery UK,” said John Scanlon, chief executive of Suez Recycling and Recovery UK. “It has clearly been an unsettling time since this stage in our journey began back in August 2020 and as it draws to an end, almost two years on, it brings greater clarity over our future direction, with hopefully a new owner in place before the end of the year. This will allow us to continue to focus as a company on providing essential waste and recycling services for our customers, whilst delivering our commitment to People and Planet, and moving towards our vision of ‘living in a world where there is no more waste’.”

In December last year, Veolia and Suez won EU antitrust approval for their €13bn merger, after a months-long dispute, including legal action and a move by Suez to ring-fence its French water business from Veolia, though that was later abandoned after the companies reached an agreement.

Richard Summerfield