Deal Activity In Sector Reaches A Record High

Mike Read, head of energy and environment at Grant Thornton UK LLP, looks at the sector’s merger and acquisition activity over the last 12 months, which saw record levels since it started its analysis in 2010…

The waste sector is a major driving force in the UK economy. Employing over 70,000 workers and with an annual turnover of at least £9 billion, it has a significant impact on Britain’s commercial, political and social systems.

In the last 12 months, the waste sector’s M&A activity has significantly increased. Our latest review of activity in the market, Annual waste and resource management review, found that the sector’s M&A activity reached the highest level since we first started the analysis in 2010.

The year started strongly with 10 deals in both the first and second quarter. It ended on an even stronger note with 21 deals seen in the last quarter, the highest quarterly level recorded since 2010. In total, 2017 saw an impressive 50 deals take place in the waste sector.

While we know uncertainty is still a dominant feature in the market due to ongoing Brexit negotiations, it is clear that investors are not being deterred and they are continuing to see opportunity within the sector.

Our report found that interest is also increasing from abroad, as 2017 saw a rise in appetite from overseas investors in acquiring UK businesses in the sector. Nearly 20% (9) of the 50 deals seen in 2017 involved overseas acquirers.

While private equity investors were involved in the largest deals in 2017, they only contributed to 10% of overall activity. Apax Partner’s’ acquisition of international hazardous waste company Safety-Kleen Europe was the largest deal in 2017, at £640 million.

Big Investment

The recycling sector recorded the highest level of investment this year, making up 42% and 26% of deals respectively. The volume of recycling deals (21) increased by 50% compared with 2016, representing the largest rise in the sector.

Paper and metal recycling firms contributed most to this activity, making up 26% of recycling deals. Notable deals included Macfarlane Group’s acquisition of Nottingham Recycling Ltd and corrugated packaging manufacturer Greenwood Stock Boxes for £16.75 million.

This demonstrates the value that these areas still hold within the market, despite the continuing fluctuations in recyclate prices. On the premise that the UK is not expected to dial back EU obligations around recycling and the circular economy, investors clearly feel that these businesses still represent a good opportunity for investment.

This will particularly be the case given the greater focus and requirements on the UK being self-sufficient in managing recyclate production.

Whilst it will take some time to fully feed through to the industry, the impact of David Attenborough’s ‘Blue Planet’ means that waste, and how we deal with it, is now firmly on the national agenda. This has created more pressure than ever on the UK government to rethink its approach to waste and recycling.

As a result we have seen a number of initiatives introduced, such as the ‘Latte Levy’, and with the rumoured ban on plastic straws and wet wipes it’s clear that interest in recycling is set to continue into 2018.

Whilst deal activity has been buoyant we know that there remains uncertainty in the future direction of the industry and the possible impact of Brexit. But the good news is the waste industry is responding.

Looking at some significant deals over the past year, it’s clear that major players have been looking to use strategic assets and partnerships to secure a position across the recycling and recovery space. This is particularly evident in the creation of Renewi, through the merger of Shanks and Van Gansewinkel and the partnership between Biffa and Covanta.

This makes it crucial for the waste market to grow more confident about the part it plays in the manufacturing cycle. In doing so, it can make a much wider contribution to the circular economy, driving a dynamic and growing economy in a post-Brexit world.


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