According to a new report from Grant Thornton UK LLP, the volume of merger and acquisition (M&A) activity in the waste sector has been steadily rising year on year since 2012, and has now reached levels close to the peak of 2011.
Its report, ‘An ever changing landscape: Waste and resource management review’, says that 2014 saw a strong finish to the year, with 15 deals completing in the final quarter, significantly more than in the same quarter of the previous three years. But the deals seen in 2014 have been largely small in scale, reflecting the need for businesses to consolidate and move up the value chain. You can read an opinion piece from Grant Thornton’s head of waste, Mike Read, about the report’s findings here.
It adds that the increasing volume of M&A activity reflects increased consolidation as the market responds to difficult trading conditions. For example Biffa’s acquisition of collection divisions from Shanks and PHS reflected an intention to consolidate its leadership in commercial and industrial collection.
Similarly the largest deal of the year was Interserve’s acquisition of Initial’s facilities management business, which at £250million consolidates Interserve’s position as one of the largest support services businesses in the UK.
Niche service providers are also going through a period of consolidation; the sale of a number of Augean’s hazardous waste assets to Cleansing Service Group and Greenway Environmental is an example of this.
Waste Deals On The Up
Deals in the first half of 2014 reflected an even spread across the sub-sectors. However, waste management deals have seen the most growth this year compared to last, accounting for 29% of all deals in 2014, up from 12% in 2013.
The well-established co-mingled recycling market has been, and remains, under considerable economic pressure. Increased recycling activity in the latter stages of 2014 resulted in the recycling sub sector accounting for the majority of waste deals by type, a 4% increase on 2013.
Some plastics recyclers have experienced difficult market conditions with the recent fall in oil prices driving down the price of virgin and reprocessed polymers whilst still finding it difficult to obtain sufficient feedstock of waste plastics. The sale of Eco Plastics Ltd to Aurelis AG is an example of a distressed sale in this area.
Some less mature areas of recycling are receiving interest from operators and investors including glass colour sorting [various plants announced] and WEEE where, following recently announced government targets and regulations, experts expect to see investment and consolidation in coming years.
This year has also seen an uplift in private equity investment across the sector, with a number of investors taking stakes or making acquisitions. Transactions have taken place across all subsectors, although there has been a focus on plastics recycling (German based Aurelius AG made two consecutive investments with the purchase of Eco Plastics and Continuum as part of a strategy to capitalise on the UK’s growing recycling sector).