Where Is The Smart Money Going In Waste & Resources?

Mike Read. Grant Thornton. Leeds. United KingdomFollowing its review of waste and resources deal activity earlier this month, which showed strong and continued growth compared to the same period in 2013, Grant Thornton’s Mike Read asks whether activity will slow down anytime soon…


Grant Thornton’s waste and resource management review of deal activity in the first six months of 2014 showed the continued strong growth this year thus far compared to the same period in 2013. Question is, will it slow down? There are no obvious signs, but does the activity that is happening now give us a clear indication of what the UK waste and resources market will look like in the medium term?

Deals in the first half of the year reflect an even spread of the different waste subsectors – with hazardous & industrial, waste management and recycling each accounting for around 30% of transactions. Energy from waste makes up the remaining 9% share. Recycling deals are slightly up on the same period last year and analysis shows increased activity in WEEE and plastic recycling – both accounting for 29% of the total.

So does that mean that all parts of the waste sector are likely to be equally attractive and buoyant in the foreseeable future? The answer is probably not. The number of deals, although growing quickly, are still relatively low and so it doesn’t take much in terms of either deals done or transaction value size to skew the results depending on which metric is being applied. So what can the analysis tell us about the future?

Hazardous and specialist waste services continue to be an interesting subsector where there is clear appetite to play. There is both continued consolidation and expansion by existing players in the sector , as well as continuing appetite from new entrants including the more traditional waste companies, like Sita who formed the Clinical waste JV last year, and investors from overseas who are exploring opportunities in the UK market.

This will continue for some time as margins remain attractive and there are sustainable revenue streams. This was a key factor in Augean divesting itself of its mainstream waste business to focus on its core market. There will come a time when economic forces mean the market starts to level but that doesn’t appear to be any time soon.

Life Remains Difficult

In the mainstream waste management sector life remains difficult with the myriad of smaller companies having to deal with the ever increasing demands for high levels of recycling and recovery, as well as wider legislation, and many are not equipped for this. This will continue to mean consolidation, which we have seen – but who will do the hoovering up? In terms of the large waste companies who traditionally would have done this, it will only be the case if it fits with a regional, or other strategic play. Therefore it will be more likely to be mid-scale company consolidation plus a wider service company involvement.

This latter grouping is a combination of the traditional construction companies and municipal service providers who want to be able to have waste services as part of their armoury, and are therefore looking for businesses to give them strategic assets and an existing pipeline of contracts. As cash strapped local authorities continue to look for efficiencies by combining street scene services, this is likely to continue.

This leaves us with the recycling sector, which is the buzz sector given as it is at the heart of the burgeoning circular economy. As this part of the market starts to take shape and companies look to find their place in it, merger and acquisition activity will continue to grow, and will be driven from players at both ends of the market. Traditional waste companies are looking to derive maximum value from the waste resource they manage rather than give it up, and reprocessors, including the likes of UPM , want earlier access to material. This is where I think the most interesting activity will be in the next couple of years.

Mike Read is head of waste at Grant Thornton UK LLP.


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