GFL Environmental said Tuesday it has entered into an agreement to sell its Environmental Services division at an enterprise value of $8 billion to Apollo Funds and BC Partners. National Bank is positive on the deal.

GFL will retain a $1.7 billion equity interest in the business and expects to realize cash proceeds of ~$6.2 billion. The company will retain a 44% equity interest and the Apollo Funds and BC Partners will each hold a 28% equity interest. GFL will also maintain an option to repurchase the ES business within five years of closing.

The transaction is expected to close in the first quarter, subject to customary closing conditions.

With the proceeds of the sale, GFL plans to use up to $3.75 billion ($3.5 billion initially guided) to pay down some of its debt. The remaining $2.25 billion is expected to be used for share buybacks and general corporate purposes.

An asset sell-down and deleveraging should support future growth, with GFL continuing to invest in high-return RNG and EPR infrastructure ($250-300 million invested in 2024) and M&A ($600-650 million target for 2024). Following the sale, National Bank expects 2025 to be a busy year for accretive tuck-in M&A. The transaction allows GFL to maintain its synergies between the Environmental Services business and the Solid Waste businesses, preserving future opportunities for its remaining operations. The maintained equity interest is an added bonus to GFL's initial guidance, enabling it to participate in the continued value creation and growth from these assets.

Bottom line: "We view the deal positively, with an accretive sale price that is in line with recent transactions. GFL's valuation has closed the gap with is larger peers (now at 14.1x 2025E), though with lower debt and an improved outlook for growth, it could continue to outperform."

GFL is rated Outperform, with a $70 target.