Recycling companies can weather the economic storm by forming strategic partnerships or merging with their competitors, according to Manchester-based corporate finance house Ford Campbell.
Partner Chris Froggatt said that recycling firms that have strong balance sheets can take the opportunity to acquire their undervalued rivals and gain greater bargaining power to ride out the storm. His comments come amid unprecedented volatility in world commodity prices and a drop in material prices.
Froggatt added: There are a huge number of companies that are asset-rich but cash-poor and locked into three year fixed price contracts, many of which were negotiated at the height of the boom. As a result, they have little or no cash reserves and are in an exceptionally weak financial position.
Many of these companies are willing to sell, and for businesses that have strong balance sheets, there are some excellent bargains out there. Newly merged companies will then have greater powers to renegotiate fixed-price contracts with suppliers that in the medium term will create a leaner and fitter business that will be attractive to buyers.
Many industry observers say it is all over for many recycling businesses. We disagree but believe that one of the key ingredients to survival is consolidation.
Image : Ford Campbell partner Chris Froggatt
Previous story, 2008 sees waste sector ripe for mergers and acquisiton activity, (11/01/09)