_{DEAL OF THE MONTH}

Waste Management Wastes No Time on Expansion

Contrary to what you’ve come to expect from us at Buysiders, today’s deal of the month is not about food or rocks. It’s trash. No literally, it’s trash.

Waste Management has agreed to acquire Stericycle - a leading medical waste disposal company - for $7.2 billion. Now that is a lot of trash.

Waste Management will acquire all of the outstanding shares in Stericycle in cash for $62 / share. Stericycle’s unaffected share price on May 30 was $49.30 / share, meaning this deal was struck at an ~26% premium.

Waste Management has identified up to $125 million of annual synergies and will be accretive after one year. The synergies will primarily come from cost savings as a result of logistics and operational optimization.

As always, a key focus in these public transactions is what does this mean for the acquiror. This deal does help Waste Management check its sustainability goals, but it’s not all sunshine and rainbows over the landfills.

Waste Management will have to raise debt to fund the deal, which will cause the Company’s Net Debt / EBITDA to kick up a bit to 3.4x, above its target of 2.75x-3.0x. As a result, Waste Management will have to suspend its share repurchases to ensure it has enough cashflow to achieve its leverage targets.

In case you don’t remember your corporate finance, suspending dividends and share repurchases is typically frowned upon by the public market, but Waste Management didn’t trash its share price doing this deal.

It is clear from the share price performance that investors generally think positively of this deal. Waste Management has traded up ~4%, indicating that shareholders are positive on the deal.

While the subject matter is trash, this deal should be a home run for Waste Management, provided that there is no time wasted in getting approvals for this deal. _{(Okay, I am done with trash related puns now.)}

_{ACTIVIST DEAL OF THE MONTH}

Elliott Takes a Flyer on Southwest

Happy July - Elliott is back causing some turbulence after it acquired an $2 billion stake in Southwest Airlines, representing ~11% of the Company’s outstanding shares.

In classic activist fashion, Paul Singers’ hedge fund sent a letter and presentation to the embattled airline outlining its plans to help reverse the airline’s poor performance, and its ~20% drop in share price this year indicates that they need the help.

Southwest believes that it is on the right track but is being hampered by the fact that Boeing cannot make good on its deliveries, which will increase costs and reduce revenue growth for the year.

Elliott on the other hand, had a much more scathing view of the Company, which was outlined in its letter to the Board (below), but they admitted that they also think that Southwest represents the most compelling airline turnaround opportunity of the last twenty years, which was the thesis behind the investment.

Elliott continues in its letter to lambast Southwest’s leadership team, pointing out that Southwest’s operational failure in December 2022 - when it left two million passengers stranded across the US - was a direct fault of the failure to modernize its systems, orders which came from on high.

Elliott has proposed a three-pronged approach to reaching a share price of $49 / share within the next 12 months (a nice 77% return on their investment).

(1) Reconstitute the board with new, truly independent directors

(2) Enhance leadership by bringing in people from outside of Southwest

(3) Comprehensive business review to restore the Company’s performance to the best-in-class standards it used to hold itself to.

The future for Southwest remains unclear as it navigates a difficult time, but Elliott is known for executing on its turn-around strategies, so it is likely that they will help pilot Southwest through this storm.

_{PE DEAL OF THE MONTH}

BlackRock Gets 2 Billion Pounds of Data

Sick of those annoying emails from data providers asking you to try out their services? Well guess what, after BlackRock bought your house, it also bought your data provider, so there is no escaping your corporate overlords.

BlackRock has agreed to buy UK-based data services provider Preqin for £2.55Bn or ~$3.2Bn.

What makes this deal interesting is that BlackRock outbid several strategic investors, including the London Stock Exchange and S&P Global, for the company during a bank-run auction process. Now it is rare for financial sponsor to ever have synergies in a deal, but BlackRock’s proprietary Aladdin portfolio management software allegedly allows for some synergies with Preqin’s existing offerings.

While its integration with Aladdin is compelling, Preqin will continue to offer standalone services because BlackRock isn’t going to just shut down a company that generates $240 million of revenue, obviously.

Also, as I remind you every month - tech valuations are crazy. BlackRock is paying 13.3x revenue for this deal. That is a venture capital level multiple on something that is a more than well-established business, but BlackRock is managing ~$10 trillion more in assets than me, so I’ll keep that opinion to myself.

BlackRock’s end-goal here is to create an index system for private markets, just like it has for public markets. While this won’t happen overnight, combining Preqin into the world’s largest asset manager’s existing pool of endless resources is certainly a step in the right direction.

This deal mostly illustrates something that has been taking shape since Microsoft dropped its first Excel commercial - data is the cornerstone of investing. With Preqin on its side, BlackRock will hopefully help bridge the knowledge gap between public and private markets.

_{NEWS ROUNDUP}

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