BC Partners Dodges ‘Scary’ Sell-Off as Rally Rescues GFL IPO

(Bloomberg) -- It’s bad enough to have to pull an initial public offering once. But a second time? That’s the prospect BC Partners faced on Friday, after the fastest stock-market correction in U.S. history erased almost 13% from the S&P 500.

The private equity firm had started the week hoping to raise about $1.54 billion for one of its portfolio companies, Canada’s GFL Environmental Inc. Then, as cases of the coronavirus jumped and the illness spread to more than 60 countries, investors began dumping equities at an unprecedented pace.

Paolo Notarnicola, a partner at the firm, surveyed the carnage and considered shelving the IPO again. He knew it would be next to impossible to sell GFL shares at the targeted range of $20 to $21 apiece, and he hoped perhaps a weekend statement from President Donald Trump or signs of central-bank action would calm markets enough to keep the deal alive.

“Friday was a bit scary,” he said Monday in a phone interview. “We decided to wait for Monday morning to see how markets traded in Asia and to look at futures.”

Patience Pays

The patience paid off. As stocks rallied to the biggest gain in more than a year, BC Partners went ahead with the sale a day ahead of schedule, pricing 75 million GFL shares at $19 each. With an additional $700 million in transferable equity units, a type of convertible debt, the company raised a total of about $2.2 billion.

The shares fell 8.7% to $17.35 at 1:34 p.m. in their New York trading debut Tuesday amid the broader market drop, giving the company a market value of $5.64 billion.

Based in a suburb north of Toronto, GFL is North America’s fourth-largest waste hauler. The company is led by Patrick Dovigi, a former professional hockey player who built it through a string of debt-financed acquisitions. London-based BC Partners acquired its stake in 2018, together with the Ontario Teachers’ Pension Plan.

GFL filed for an IPO in July and by October was targeting a price as high as $24 a share. But buyers balked at its growth prospects and debt obligations. The company pulled that listing plan in November.

Had BC Partners taken the advice of GFL’s underwriters, Monday’s IPO might not have happened either. Banks led by JPMorgan Chase & Co., Goldman Sachs Group Inc. and Royal Bank of Canada, encouraged the firm to sell at $18 a share to ensure the deal’s success, according to BC Partners Chairman Raymond Svider. At that price, it wouldn’t have been worth the dilutive impact of issuing new stock to reduce debt, he said.

‘Gesture’ to Market

At about 4:30 p.m. on Monday, with the S&P 500 having closed the day up 4.6%, the parties convened on a conference call. Notarnicola, vacationing with his family, was on the line from Miami. Svider joined from Phoenix, where his flight had just landed. They decided to go ahead with an offering at $19.

“We could have squeezed it in at $20 a share, but it would have been a risk,” Svider said. “Ultimately, we decided to make a gesture to the market so that everybody’s happy and trading starts in a positive way.”

The job of stabilizing the stock now falls to JPMorgan and the other underwriters, Bank of Montreal and Bank of Nova Scotia as well as Goldman Sachs and RBC. The company’s shares are trading on the New York Stock Exchange and the Toronto Stock Exchange under the symbol GFL.

BC Partners remains GFL’s largest shareholder, controlling about 40% of its stock after the offering, according to the company’s IPO filings.

Notarnicola is confident GFL can withstand whatever turbulence may lie ahead, even if the coronavirus continues to spread and the outlook for global growth deteriorates further.

“This is just a great industry that has proved itself resilient to volatile environments,” he said. “Waste management doesn’t go away during difficult times.”

To contact the reporters on this story: Erik Schatzker in New York at eschatzker@bloomberg.net;Crystal Tse in New York at ctse44@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Michael Hytha, Fion Li

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