Portable Toilet Empire Is So Valuable a PE Firm Is Paying $4 Billion to Keep It

(Bloomberg) -- The private-equity math for portable toilets looks like this in 2021: a billion gallons of waste handled annually equals a $4 billion valuation.

Those are, anyhow, the numbers behind Platinum Equity’s deal to transfer ownership of United Site Services Inc. from one of its funds to another, comprised of $2.55 billion of newly issued debt and $1.4 billion of equity, according to marketing documents seen by Bloomberg News.

Platinum had explored other options for the company, including a sale to an outside buyer, earlier this year but ultimately decided to hold onto it, according to people with knowledge of the matter who asked not to be named because the discussions are private.

The plan Platinum settled on will let existing investors cash out while keeping Tom Gores’s buyout firm in the industry at a time when a post-pandemic return to live, in-person events could give United Site and its 360,000 portable restrooms a lift. 

And the company didn’t do badly amid Covid-19, either, as previously indoor activities shifted to the bathroom-less outdoors. Credit raters say United Site performed better-than-expected in the face of the coronavirus. Its acquisition-adjusted earnings grew 45% in 2020 from the previous year, and were up 23% during the first six months of 2021 versus the same period in 2020, the documents show. 

Representatives for Platinum and Bank of America Corp., which is the lead manager on the debt sale, declined to comment.

$2.6 Billion Payout

The buyout firm is transferring ownership to a so-called continuation fund, an entity that lets Platinum continue to run the company with capital from a mix of new and existing investors. The plan calls for current equity holders to get paid $2.6 billion for the company and existing debt to be paid off, according to deal documents.

Dozens of small acquisitions and an aggressive cost-cutting plan have helped Platinum grow United Site’s earnings enough that it can saddle the company with more debt and lock in gains for investors. However, the new capital structure will significantly increase United Site’s debt load to around eight times earnings, according to Moody’s Investors Service.

Platinum is marketing the deal as having leverage of 6.7 times, based on earnings of around $384 million, according to the deal documents. The credit-rating firm said it plans to rate the rejigged company B3, or six levels into junk.

Platinum started marketing bonds and loans for the recapitalization last week and will continue meetings with debt investors until Thursday, according to separate people with knowledge of the matter.

It’s offering a $1.25 billion seven-year loan at a spread of 4.50 to 4.75 percentage points over the London interbank offered rate, as well as $1.3 billion of bonds, with initial discussions for a yield of as much as 8% on the riskiest tranche, according to the people.

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