A Corporate Carveout that Needed to Narrow its Focus
Viridor, a company that operates waste-to-energy plants in the United Kingdom, has strong infrastructure characteristics. It is backed by hard assets that provide an essential service to local municipalities. It benefits from long-term inflation linked contracts with government counterparties which in turn provide a high cash flow visibility.
On top of that solid foundation, we saw an opportunity to derisk and rerate the business. The company didn’t start out as a company, but rather as a division of a larger water utility. It processed less waste and created less electricity than comparable standalone waste-to-energy companies in its sector. It also managed waste collection, recycling and landfills, and some of those businesses either weren’t essential to what we saw as the core infrastructure opportunity or attractive given the push to decarbonize waste-related businesses.
Carving out a division from a larger company is difficult. Operators must choose a management team, ensure continuity of everything from supply chains to IT, and create a cohesive culture quickly. However, all these challenges are also opportunities—to hire talented executives, make back-end systems more efficient, empower the work force with aligned incentives and set clear goals for moving forward.
With the help of KKR Capstone, our operational specialists, we separated Viridor from its parent, divested the waste collection and landfill businesses, made incremental capital investments that increased the plants’ capacity, made operations more efficient, and split the company into two parts: an operating company that runs the existing plants and a development company that works on developing new businesses that relate to the circular economy. With the help of KKR Capital Markets, we strengthened the balance sheet of Viridor by raising long-dated fixed interest rate investment grade debt.
Today, Viridor is building two more waste-to-energy plants and recently signed a long-term partnership with the British government to capture and store the carbon produced at one of the company’s facilities. We have sold a portion of the operating company and are working on new initiatives related to the circular economy with the development company, including converting used plastic back into raw materials that can be recycled into new plastic. These initiatives can both create value and enhance sustainability for the business, ensuring that Viridor is well positioned to stay ahead of both regulation and public opinion in the United Kingdom. For example, Viridor is poised to become a net-negative carbon emitter, meaning that running the business puts less carbon into the atmosphere than its recycling and energy creation businesses keep out.
