Waste sector M&A activity subdued as big market players seek specialist strategic acquisitions
Analysis from financial advisers Grant Thornton UK LLP reveals that mergers and acquisitions (M&A) activity in the UK waste sector for 2015 remained relatively quiet, noting a decline in both the volume and value of deals completed.
There were 38 waste sector deals announced or completed in 2015, representing a 16% decline compared to 2014.
The research shows that deal values are also subdued, with no deals surpassing £60 million in investment. The largest deal completed in 2015 was the acquisition of IT recycler RD Trading by Arrow Electronics early in the first quarter of the year.
Mike Read, Head of Waste and Resource Management at Grant Thornton UK LLP, said:
"Deal activity remained steady last year and has been at consistently low levels since 2010. The subdued M&A environment in the waste management sector is largely a consequence of reduced appetite from the big trade players, who do not have the funds or the desire to consolidate pure waste management services portfolios that do not have a clear value add. Instead these businesses are focussed on strategic acquisitions that meet specific needs outlined in their business plans which support future aspirations to expand their offering to a wide range of resource management services."
Recycling M&A activity continues to see the most investment, accounting for the majority of the deals (39% of total). Within the recycling category there has been activity in glass (from 0 in 2014 to 7% in 2015) and a year on year increased investment of 14% in organic waste (to 33% in 2015). There was consistent activity in the WEEE sub-sector, which accounted for a third (33%) of recycling M&A activity in 2015.
Waste management (29%) and hazardous/industrial waste deals (29%) accounted for the majority of the remaining deals completed in 2015.
Mike Read continued:
"With the rise of the circular economy, recycling businesses, especially those offering specialist services, are increasingly attractive to investors and we expect deal activity in this area to continue, maybe even to grow.
"Whether that growth will happen next year or further down the line remains to be seen as the market continues to get to grips with what is required and what can realistically be delivered. The impending in/out EU referendum casts a temporary question mark over the implementation timeline for circular economy measures which can't be resolved until the votes are cast."
An upward trend observed this year can be found in the deals being done by financial investors with a number of deals attracting interest from both the private equity and venture capital communities. Aurelius AG, a listed mid-market pan-European investor based in Germany, has been an active player again in 2015, making two consecutive investments in the plastics sector.
"Financial investor interest in the waste management sector is growing in the niche sectors which offer opportunities for growth and higher margins and are less impacted by core waste management service which are about volume and lower margins," concluded Mike Read.