Bingo Industries (ASX:BIN) confirmed in late January that it has received an unsolicited, indicative takeover proposal from a consortium led by private equity firm, CPE Capital (formerly known as CHAMP Private Equity), and including a Macquarie Infrastructure Fund (Macquarie Infrastructure & Real Assets, MIRA).
The cash offer price of $3.50 per share (representing a 28 per cent premium to the pre-bid closing share price) values the waste management company at $2.6 billion, equating to c.15x FY22 consensus EBITDA ($169 million) and c.10x BIN’s medium-term earnings target ($250 million).
We are not surprised to see corporate interest in BIN’s long-life, infrastructure assets which are strategically leveraged to attractive themes like recycling, population growth and government stimulus. In the low growth, low-return world we find ourselves in (where global interest rates are approaching zero!) large global investors with very long-term investment horizons and very low costs of capital are increasingly bidding up long-life, cash generative assets across sectors such as waste, utilities, infrastructure, telcos, and datacentres. Consequently, a competing bid for BIN can’t be ruled out.
Founded in 2005, initially a family-owned skip bin business based in Western Sydney, BIN listed on the ASX in 2017 and has grown to become a vertically integrated waste management company with the largest network of recycling and resource recovery centres in NSW and VIC with 4.6 million tonnes per annum total network capacity.
Timing of the CPE Capital proposal appears somewhat opportunistic considering the bid comes ahead of an anticipated cyclical upswing and benefits from the optionality associated with developing the recycling ecology park at Eastern Creek. The domestic housing market is showing strong signs of recovery while Federal and state governments are looking to lift recycling rates in Australia, which remain well below other developed nations, and to stimulate the economy by fast-tracking the infrastructure project pipeline.
Further, a privatised Bingo could potentially be used by the Consortium as a platform to further consolidate the fragmented domestic waste management industry, particularly if the competition regulator forces various asset divestments should Veolia Environment (PA:VIE) be successful in its hostile takeover of French waste rival Suez (PA:SEVI).
The implied 10x valuation on BIN’s medium-term EBITDA target compares to the 9.6x (pre-synergies) BIN paid for Dial-a-Dump in 2018 and the 10x (pre-synergies) Cleanaway (ASX:CWY) paid for ToxFree in 2017.
CPE Capital is no stranger to BIN having acquired the company’s Banksmeadow facility in Sydney for $50 million in September 2019 after the ACCC forced the sale of the asset following BIN’s $578 million Dial-a-Dump acquisition. We also note Macquarie’s infrastructure investment arm, MIRA, is one of the biggest infrastructure investors in the world with more than US$130 billion in assets under management and waste management investments in North America and Europe.
The proposal is currently being considered by an Independent Board Committee and the company has granted the consortium due diligence. If the deal goes ahead, BIN’s largest shareholder, the Tartak family, will potentially roll its stake into the bid vehicle, effectively allowing them to invest alongside the PE led consortium and share in the upside potential of the business. CEO Daniel Tartak holds 19.8 per cent of the company while Director Bill Malouf speaks for a further 12 per cent.
We expect opportunistic bids like this to become an emerging theme in Small Caps over the coming years. So the question then becomes who else could catch a bid?
There are plenty of companies within our investable universe with highly strategic, high quality, long-life assets which could catch the eye of large investors in a low-growth, low return world. Two that spring to mind (that we own of course!) are Macquarie Telecom Group (ASX:MAQ) and Uniti Group (ASX:UWL).
Datacentres and telco fibre are digital infrastructure for tomorrow’s economy. Evidence of recent appetite for such assets includes Aussie Super’s proposed acquisition of Infratil (NZX:IFT) (whose biggest asset is Canberra Datacentres, a close peer for MAQ) and Aware Super’s bid for Opticomm (which UWL ultimately secured). We think both MAQ and UWL remain materially undervalued for their quality and growth characteristics…and given recent interest in the sector, perhaps private investors will see what we see?