Dive Brief:

• Waste Management has reached a definitive agreement to acquire Advanced Disposal Services, the U.S. waste and recycling industry's fourth-largest company. First reported by The Wall Street Journal, the deal was confirmed in a Waste Management release this morning.
• Both companies' boards have unanimously approved the transaction, which is expected to involve a Waste Management subsidiary acquiring all outstanding shares of Advanced for $33.15 per share in cash. When factoring in $1.9 billion of net debt, the deal is said to be valued at $4.9 billion. 
• Pending regulatory approval, the deal is expected to close by Q1 2020. A majority of shareholders that own Advanced's outstanding common shares must also vote to approve it. The Canada Pension Plan Investment Board, which owns 19% of shares, will vote in favor.

Dive Insight:

Waste Management's strong balance sheet and relatively quiet deal activity has generated speculation in recent months that a significant transaction could be afoot. Advanced had long been seen as a prime candidate for one of the majors to acquire, but the news of this deal still came as a surprise to some of the industry's closest observers.

"With this acquisition, we will grow our asset footprint to serve more customers and communities and generate significant growth and value creation opportunities for Waste Management's shareholders and our combined company's employee base," said CEO Jim Fish in a statement. "Waste Management's disciplined capital allocation and balance sheet strength position us well to execute upon this unique opportunity to expand our scale and capabilities to serve an even broader customer base and realize the strategic and financial benefits the acquisition of Advanced Disposal creates."

The North American agglomerate reported $14.91 billion in revenue and $466 million in acquisitions for 2018. Executives had previously projected spending $200-400 million on tuck-in deals during 2019. Waste Management has now said it plans to finance this new deal through a combination of debt and senior notes. The company is projecting it will achieve more than $100 million in annual synergies as a result of the transaction.

Florida-based Advanced Disposal reported $1.56 billion in revenue for 2018, with more than 3 million customers in 16 Eastern states and the Bahamas. The company's operations currently include an estimated 6,000 employees, 94 collection operations, 73 transfer stations, 41 landfills and 22 owned or operated MRFs. That disposal network, which includes many sites with the potential for significant capacity, may have been particularly appealing.

"This acquisition stands as a testament to the strength of the Advanced Disposal business and brings together two strong waste management teams with extensive environmental services expertise to better serve our customers and communities," said CEO Richard Burke in a statement. "We look forward to working with the Waste Management team to complete the transaction and ensure that we continue to deliver the highest quality service to our customers."

Advanced Disposal was founded in 2000, expanded significantly with a set of 2012 deals that included assets from Interstate Waste Services and Veolia Solid Waste, and went public in 2016. The Veolia deal prompted a Department of Justice divestiture settlement over assets in two states. Some expect similar antitrust concerns over this new mega deal with Waste Management, particularly in the Chicago market.

If approved, the acquisition is set to go down as one of the industry's largest in recent history. In terms of consolidating power, it would join the likes of mergers between Republic Services and Allied Waste in 2008, Waste Connections and Progressive Waste Solutions in 2016, and GFL Environmental and Waste Industries in 2018.

More details and perspective can be expected during Waste Management's Q1 earnings call on April 25. Advanced Disposal's previously scheduled May 1 earnings call has been canceled.