Stericycle acquired by Waste Management: fairness opinion by BofA Securities
Announced June 3, 2024 · One-step merger · All cash ·
DEFM14A filed July 10, 2024
Outsourced Services Waste Management / Laundry
Enterprise value
$7.2B
EV / LTM EBITDA
15.1x
EBITDA $478M · 17% margin
EV / LTM revenue
2.63x
revenue $2.7B
DCF discount rate
8.5%–10.0%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$62.00
Premium—
Premium basisUnaffected Share Price of $44.75 (as of the Unaffected Date, May 31, 2024 reference)
StructureOne-step merger
Termination fee$175M (3.0% of equity)
Reverse termination fee$263M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $62.00 offer
Selected companies — EV / 2024E Adj. EBITDA (consolidated Stericycle) $43.75 – $59.00
Selected companies — P / 2024E Adj. EPS $49.50 – $61.25
Selected companies — Equity Value / 2024E FCF $48.00 – $64.00
Selected companies — Sum-of-the-parts combined implied equity value per share $40.50 – $50.75
Precedent transactions — EV / LTM Adj. EBITDA (12 months ended March 31, 2024) $35.00 – $57.50
Discounted cash flow $46.25 – $76.00
52-Week Trading Range (informational) $39.18 – $55.65
Wall Street Analyst Price Targets (informational) $45.25 – $67.75
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of BofA Securities to the target board
Delivered June 2, 2024 · Fee $45.0M ($42.5M contingent on closing), $2.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate8.5%–10.0%
BasisEstimate of Stericycle's weighted average cost of capital derived using the capital asset pricing model (risk-free rate, levered/unlevered beta, capital structure, historical equity risk premium)
Terminal valuePerpetuity growth
Perpetuity growth3.0%–4.0%
Exit multiple—
Projection periodQ2 2024E-2028E
Projections usedManagement Projections (the Forecasts)
Implied value per share$46.25–$76.00
Unlevered free cash flows and terminal values discounted to March 31, 2024 using mid-year discounting convention; net debt and non-controlling interest as of March 31, 2024 deducted.
Selected public companies (15)
Clean Harbors, Inc. · GFL Environmental Inc. · Republic Services, Inc. · Waste Connections, Inc. · Waste Management, Inc. · Redishred Capital Corp. · Rentokil Initial plc · Unifirst Corporation · Vestis Corporation · Befesa S.A. · Elis SA · Renewi plc · Restore plc · Séché Environnement SA · Veolia Environnement SA
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2024E Adj. EBITDA - Environmental Services Selected Companies | 12.7x | 14.7x | 17.5x | — | — |
| EV / 2024E Adj. EBITDA - Route-Based Selected Companies | 5.8x | 8.9x | 11.3x | — | — |
| EV / 2024E Adj. EBITDA - International Selected Companies | 5.8x | 7.3x | 9.1x | — | — |
| EV / 2024E Adj. EBITDA (consolidated Stericycle) | 5.8x | — | 17.5x | 11.5x–14.5x | $43.75–$59.00 |
| P / 2024E Adj. EPS | 12.7x | — | 41.1x | 21.0x–26.0x | $49.50–$61.25 |
| Equity Value / 2024E FCF | 8.5x | — | 39.3x | 21.0x–28.0x | $48.00–$64.00 |
| Sum-of-the-parts: EV / 2024E Adj. EBITDA - RWCS North America | — | — | — | 13.0x–15.0x | — |
| Sum-of-the-parts: EV / 2024E Adj. EBITDA - SID North America | — | — | — | 9.0x–11.0x | — |
| Sum-of-the-parts: EV / 2024E Adj. EBITDA - International | — | — | — | 6.0x–8.0x | — |
| Sum-of-the-parts combined implied equity value per share | — | — | — | — | $40.50–$50.75 |
Selected precedent transactions (32)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2023-12-11 | Heritage Environmental Services | EQT Infrastructure (EQT Infrastructure VI) | — |
| 2023-07-19 | Heritage-Crystal Clean, Inc. | J.F. Lehman & Company | 7.3x EV / LTM Adj. EBITDA |
| 2023-04-24 | GFL Environmental Inc. (Transfer & Recycling Operations Business) | Casella Waste Systems, Inc. | 12.2x EV / LTM Adj. EBITDA |
| 2023-04-03 | Circon Holdings, Inc. | Covanta Holding Corporation | — |
| 2022-07-20 | VLS Environmental Solutions | I Squared Capital (ISQ Global Infrastructure Fund III) | — |
| 2022-02-09 | US Ecology, Inc. | Republic Services, Inc. | 14.1x EV / LTM Adj. EBITDA |
| 2021-08-04 | HydroChemPSC | Clean Harbors, Inc. | 10.9x EV / LTM Adj. EBITDA |
| 2021-07-14 | Covanta Holding Corporation | EQT Infrastructure (EQT Infrastructure V) | 12.2x EV / LTM Adj. EBITDA |
| 2021-03-15 | Terrapure Environmental Ltd. (Solid Waste and Environmental Solutions Business) | GFL Environmental Inc. | 9.5x EV / LTM Adj. EBITDA |
| 2020-08-12 | WCA Waste Corporation | GFL Environmental Inc. | — |
| 2020-02-07 | Stericycle (Environmental Solutions (ESOL) Business) | Harsco Corporation | 13.2x EV / LTM Adj. EBITDA |
| 2019-06-24 | NRC Group Holding Corp. | US Ecology, Inc. | 10.6x EV / LTM Adj. EBITDA |
| 2019-05-09 | Clean Earth Inc. | Harsco Corporation | 14.4x EV / LTM Adj. EBITDA |
| 2019-04-15 | Advanced Disposal Services, Inc. | Waste Management, Inc. | 11.6x EV / LTM Adj. EBITDA |
| 2018-10-10 | Waste Industries | GFL Environmental Inc. | — |
| 2018-06-26 | NRC Group Holdings, LLC | Hennessy Capital Acquisition Corp. III | 10.8x EV / LTM Adj. EBITDA |
| 2016-01-19 | Progressive Waste Solutions Ltd. | Waste Connections, Inc. | 8.4x EV / LTM Adj. EBITDA |
| 2015-10-29 | Transforce Inc. (Waste Management Segment) | GFL Environmental Inc. | 9.8x EV / LTM Adj. EBITDA |
| 2014-12-23 | Newalta Corp. (Industrial Division) | Birch Hill Equity Partners | 5.0x EV / LTM Adj. EBITDA |
| 2014-10-06 | Deffenbaugh Disposal, Inc. | Waste Management, Inc. | 8.0x EV / LTM Adj. EBITDA |
| 2014-04-07 | EQ - The Environmental Quality Company | US Ecology Inc. | 8.6x EV / LTM Adj. EBITDA |
| 2012-10-29 | Safety-Kleen, Inc. | Clean Harbors, Inc. | 6.6x EV / LTM Adj. EBITDA |
| 2011-12-21 | WCA Waste Corporation | Macquarie Capital (Macquarie Infrastructure Partners II) | 9.1x EV / LTM Adj. EBITDA |
| 2011-04-06 | Peak Energy Services Ltd. | Clean Harbors, Inc. | 8.4x EV / LTM Adj. EBITDA |
| 2023-07-18 | Cima S.p.A. | Loomis AB | 8.0x EV / LTM Adj. EBITDA |
| 2021-12-14 | Terminix Global Holdings, Inc. | Rentokil Initial plc | 19.3x EV / LTM Adj. EBITDA |
| 2021-04-06 | PAI, Inc. | The Brink's Company | 7.1x EV / LTM Adj. EBITDA |
| 2020-02-26 | G4S plc (Cash Operations) | The Brink's Company | 7.5x EV / LTM Adj. EBITDA |
| 2018-05-31 | Dunbar Armored, Inc. | The Brink's Company | 12.1x EV / LTM Adj. EBITDA |
| 2017-07-13 | Maco Transportada de Caudales S.A. | The Brink's Company | 8.7x EV / LTM Adj. EBITDA |
| 2016-08-16 | G&K Services, Inc. | Cintas Corporation | 14.0x EV / LTM Adj. EBITDA |
| 2015-07-15 | Shred-It International Inc. | Stericycle, Inc. | 12.8x EV / LTM Adj. EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Adj. EBITDA - Environmental Services Acquisitions | 5.0x | 9.8x | 14.4x | — | — |
| EV / LTM Adj. EBITDA - Route-Based Logistics Acquisitions | 7.1x | 10.4x | 19.3x | — | — |
| EV / LTM Adj. EBITDA (12 months ended March 31, 2024) | 5.0x | — | 19.3x | 11.0x–16.0x | $35.00–$57.50 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| 52-Week Trading Range (informational) | Trading range of Stericycle common stock for the 52-week period ended May 31, 2024 was $39.18 to $55.65. | $39.18–$55.65 |
| Wall Street Analyst Price Targets (informational) | Four publicly available equity research analyst price targets as of the Unaffected Date, indicating a present value of $45.25 to $67.75 when discounted by one year at Stericycle's estimated mid-point cost of equity of 10.5%; median target $62.00, mean $62.25. | $45.25–$67.75 |
| Historical Trading Multiples Comparison | Compared current and 1-, 2-, 3- and 5-year average EV/NTM Adj. EBITDA (Stericycle 11.0x-13.3x vs. Environmental Services average 13.0x-13.8x), Equity Value/NTM FCF (Stericycle 17.0x-23.1x vs. 25.3x-28.5x) and Price/NTM Adj. EPS (Stericycle 17.8x-22.4x vs. 27.8x-30.0x) multiples. | — |
Aggregate fee of approximately $45 million, $2.5 million payable upon delivery of the opinion and the remainder contingent on consummation of the Merger, plus expense reimbursement and indemnity. BofA derived approximately $9 million of revenues from Stericycle and approximately $24 million from Parent for corporate/investment banking services from June 1, 2022 through May 31, 2024.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $2.8B | $3.0B | $3.1B | $3.2B | 4.3% |
| Revenue growth | 3.6% | 4.8% | 5.1% | 3.1% | |
| EBITDA | $545M | $639M | $725M | $750M | 11.2% |
| EBITDA growth | 14.0% | 17.2% | 13.5% | 3.4% | |
| EBITDA margin | 19% | 22% | 23% | 23% | |
| Implied EV / EBITDA | 13.2x | 11.3x | 9.9x | 9.6x |
Year-1 growth is against LTM at announcement ($2.7B revenue, $478M EBITDA); later years are year over year.
Management prepared a long range plan (the "Management Projections"/"Forecasts") approved by the Board on February 5, 2024, covering 2024F-2028F on a standalone basis. Total revenue grows from $2,734 million in 2024F to $3,217 million in 2028F, with adjusted EBITDA of $478 million in 2024F rising to $750 million in 2028F, adjusted EPS of $2.36 to $4.14, and unlevered free cash flow of $277 million to $437 million. The projections were authorized for BofA Securities' use in its financial analyses and opinion and were furnished to Waste Management for due diligence; they exclude effects of the Merger and future acquisitions/divestitures.
Process notes
Single financial advisor (BofA Securities) delivered an oral opinion on June 2, 2024, confirmed in writing the same date, to the Stericycle Board. Price negotiated down from earlier proposals: Parent's May 21, 2024 proposal of $62.00 (reduced due to identified technology investment needs, delayed synergies and pending legal matters), Board counteroffered $63.50; final deal at $62.00 per share versus an Unaffected Share Price of $44.75. Termination fee negotiations moved from 2.0% to 3.75% to a final 3.0% of transaction equity value ($175 million company fee); reverse termination fee of $262.5 million payable by Waste Management (Parent sought 4.5% vs Stericycle's requested 6%); regulatory covenant negotiated away from a full 'hell or high water' standard to a burdensome-condition limit tied to $25 million of projected annual EBITDA loss. BofA's sum-of-the-parts analysis valued three separate business segments (RWCS North America, SID North America, International). BofA disclosed approximately $9 million of revenues from Stericycle and approximately $24 million from Parent over the prior two years, and holdings of ~$2.2 million of Stericycle stock and ~$270 million of Parent stock.
Other Outsourced Services fairness opinions
- R1 RCM / TowerBrook and CD&R 2024 · 13.6x EV/EBITDA
- Cross Country Healthcare / Aya Healthcare 2024 · 12.1x EV/EBITDA
- Premier / Patient Square Capital 2025 · 10.9x EV/EBITDA
- ProAssurance / The Doctors 2025 · 12.4x EV/EBITDA
- Cross Country Healthcare / Knox Lane 2026 · 16.3x EV/EBITDA
- Sharps Compliance / Aurora Capital Partners 2022 · 25.2x EV/EBITDA
All Outsourced Services opinions → · BofA Securities opinions