Hong Kong-listed Cheung Kong Infrastructure Holdings (CKI) has agreed to buy New Zealand waste management company EnviroWaste for NZ$501 million ($422 million), according to a statement yesterday. The acquisition indicates that CKI is continuing its recent acquisition spree.
The sale by Australian private equity firm Ironbridge values EnviroWaste at 10 times earnings before interest, tax, depreciation and amortisation (Ebitda) for the fiscal year to June 2012 and includes NZ$11 million of debt, according to the statement.
Firch Ratings said that it expects CKI will mostly fund the acquisition with available cash, which amounted to an estimated HK$7 billion ($903 million) at the end of last year.
EnviroWaste is the second-biggest waste services business in New Zealand, with about half a million commercial and residential customers. It owns landfill sites (including the key Hampton Downs), recycling depots, transfer stations and methane gas technology used for power generation. The firm’s current management team is likely to continue running the operation under CKI control.
“Waste management provides good opportunity for future growth,” said Kam Hing Lam, CKI group managing director in a press announcement. “It’s expected that New Zealand will experience long-term waste volume growth as the economy continues to expand.”
According to Fitch, barriers to entry are high given a lack of available landfill sites and high environmental standards in New Zealand.
In New Zealand, CKI also owns power distributor Wellington Electricity Lines.
However, the proposed acquisition of EnviroWaste — specifically of Barra Topco, the holding company — is significantly smaller than CKI’s previous purchases of UK Power Networks in October 2010 and Northumbrian Water in October 2011. In July, Li Ka-shing’s CKI also paid $1 billion for another British firm, Wales & West Utilities.
CKI built up its war chest with share issues and bond deals last year. Yet, the acquisition of an unregulated waste management company is slightly anomalous.
However, “while the proposed purchase of Barra Topco represents a deviation from CKI’s preferred strategy of acquiring regulated utilities assets”, Fitch does not see this as impairing CKI’s risk profile. The firm has a strong position in a developed market and is likely to provide CKI with immediate cash returns.
Ironbridge bought EnviroWaste from Fulton Hogan for NZ$259 million in 2007, and subsequently made 17 additional acquisitions and doubled Ebitda. The sale to CKI is subject to several regulatory approvals, and the target closing date for the transaction is the second quarter of 2013.
UBS advised CKI and Ironbridge was advised by Macquarie.
