At a time when buyout shops and banks faced jittery markets all around, the £1.58 billion ($2.44 billion) take-private of U.K. waste manager Biffa plc, agreed to in February, was a welcome ray of hope. It was also the biggest-ever acquisition by British private equity firm Montagu Private Equity LLP, with not coincidentally a modest leverage multiple of just over 1.5 times equity.

"The size of the equity in the deal meant that we were always going to need a third partner," says Montagu director Jason Gatenby, who with fellow Montagu director Heidi Bryson, led negotiations with Biffa. "Hg didn't want to be the smallest of three partners, so they stepped aside."

Montagu is making a significant bet on Biffa, given the expected market downturn and the state of flux in the waste management industry. Montagu and GIP each invested about £306 million of equity, while HBOS put in about £100 million.

"Data suggests that waste levels don't materially differ with the economic cycle," says Gatenby.

"Biffa's success will rest on the transition of the sector from reliance on landfill to new technologies like alternative energy generation and recycling."

That change will likely occur over 10 years, but critical decisions about Biffa's strategy will almost certainly come in the next two to three years while Montagu and GIP still hold the reins. That will mean new investment will be necessary, though the partners say they have yet to determine when and how much capital to commit.

Biffa isn't Montagu's first investment in waste management. The firm bought British waste recycler Cory Environmental Ltd. for £200 million in April 2005, before flipping it to a consortium of infrastructure investors, including ABN Amro Global Infrastructure Fund, Finpro SGPS SA and Santander Private Equity, for £588 million.

GIP admits it jumped on the Biffa deal opportunistically. The infrastructure fund was, and still is, hungry for new assets, not least because of its success in fundraising, which ended in May, after the firm took in $5.64 billion in new funds.

Biffa's price, which rose to £1.7 billion including advisory fees, valued the group at about 10.5 times Ebitda of £162 million and a premium of about 34% to the group's prebid closing price. Shares in Biffa were delisted on April 8.

The buyers cast a wide net for financing, turning to five banks -- HBOS, HSBC Holdings plc, Royal Bank of Scotland Group plc, Credit Suisse Group and Barclays plc -- to fund a loan of about £1.14 billion. "A year earlier, we probably would have needed just one or two banks," says Gatenby. "We had the financing in place early. The banks knew we had spent a lot of time looking at the business, and the structure didn't change, so it wasn't a problem."

The debt was split between £860 million in senior facilities, priced at between 275 basis points and 400 basis points above LIBOR, and a roughly £280 million mezzanine loan that paid 425 basis points in cash and 550 basis points in payment-in-kind, according to a source with knowledge of the deal.

Happily for the lenders, there has been little problem in moving the debt; the same cannot be said for many other loan syndications. "You couldn't say the debt flew out the door, but it certainly wasn't the hardest sell the banks have had in recent months," says Paul Marriott, a spokesman for Global Infrastructure Partners.

By April, the entire Biffa debt had been resold and cleared from the banks' books -- proof that not everything connected to rubbish is junk.

-- View the complete PE Deals of the Year slideshow --