The integration of Suez will underpin Veolia’s financial risk profile partly through the way the EUR 10.4bn acquisition has been financed, through an equity increase, the placement of hybrid debt and significant proceeds from the asset disposals.

Veolia’s leverage – as measured by Scope-adjusted debt/EBITDA – should remain within a multiple of 3.0-4.0x over the next few years due to improved profitability on cost savings and revenue gains, in addition to the acquisition’s neutral effect on credit metrics as the merger has been funded with a bridge loan.

“We see a significant positive impact on Veolia’s market positioning and diversification as the company is acquiring the international assets of Suez which creates an environmental-services business that is more geographically diversified than before and notably less reliant on France,” says Charita Gamage, analyst at Scope Ratings.

Veolia’s market share in France will shrink to 15% from 21% before the takeover. “Synergies are potentially significant given the complementarity of the companies’ assets, know-how, technology, and clients,” says Gamage.

Veolia’s revenue mix before and after the Suez acquisition

The deal transforms Veolia into the global leader in environmental services by size with combined revenue of EUR 37bn in 2022.

The change in revenue mix – see chart – reduces Veolia’s exposure to more cyclical energy activities to 15% from 21% and increases it in water technologies to 17% from 11%. While less dramatic a shift, the enlarged Veolia gains greater exposure to the higher-margin waste-management segment while reducing reliance on water, a business that operates mostly under regulated tariffs.

“The incorporation of Suez will have a notable positive impact on the overall EBITDA, especially in the waste and water technology segments, in addition to forecast synergies of EUR 500m a year, and hence, on the business overall,” says Gamage.

“However, we would note the integration risk inevitably involved in such large-scale transactions even if we are confident that Veolia’s management will work hard to minimise them, heeding the lessons learnt from previous international expansions” says Gamage.

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