There was significant M&A news in the waste industry this morning. Waste Management (WM, Financial) announced a definitive agreement to acquire Stericycle (SRCL, Financial) for $62 per share in cash. This deal represents a total enterprise value (EV) of $7.2 billion, including $1.4 billion of Stericycle's net debt. The price reflects a 20% premium to Stericycle's closing price last Friday. Both companies' boards have unanimously approved the transaction, which is expected to close as early as Q4.
- Waste Management (WM, Financial) provides collection, recycling, and disposal services to millions of customers across North America. Stericycle (SRCL, Financial), on the other hand, specializes in medical waste and compliance services. This acquisition will expand WM's environmental service offerings and strengthen its presence in the medical waste industry.
- WM highlighted that the acquisition offers a complementary business platform in the healthcare market, a sector with strong growth prospects. The deal allows WM to provide a comprehensive suite of environmental waste services, positioning it as a one-stop solution for customers. WM expects Stericycle to drive revenue growth that surpasses its core solid waste business, given the positive outlook for healthcare services in North America.
- On the cost side, WM anticipates more than $125 million in annual run-rate synergies from the transaction. Stericycle is expected to benefit from WM's logistics expertise and technology-driven cost optimization. The acquisition is projected to be accretive to WM's earnings and cash flows within one year of closing.
- WM plans to finance the transaction using a combination of bank debt and senior notes. In the short term, WM's net debt-to-EBITDA ratio is expected to increase to 3.4x. However, WM remains committed to maintaining a strong balance sheet and solid investment-grade credit profile. To manage leverage, WM will temporarily suspend share repurchases, aiming to return its leverage ratio to the targeted range of 2.75x to 3.0x within approximately 18 months post-closing.
Overall, this deal appears beneficial for both companies. For WM, it significantly increases its exposure to the high-growth medical waste sector and enhances its ability to offer comprehensive waste management services. Although the high acquisition price and debt financing may be concerns, the strategic advantages and potential synergies are substantial.
The deal also seems favorable for Stericycle, which has faced revenue declines and inconsistent earnings over the past year. The acquisition offers a premium price of $62 per share, providing a positive outcome for Stericycle's shareholders. The company had been exploring a sale, so this announcement aligns with market expectations.
