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Waste companies take advantage of market with merger and acquisition deals

Improving market conditions are paving the way for a wave of buyouts in the waste sector, with some deals attracting the attention of competition authorities.

Experts such as Mark Wilson, partner at Catalyst Corporate Finance, noted an upturn in mergers and acquisitions (M&A) activity in the industry during the past few weeks and said the trend was expected to continue in thorough 2014.

Recent M&A deals have involved large players such as Shanks, which sold its commercial and industrial (C&I) business to Biffa, and smaller companies such as Cambridge-based Ellgia Recycling, which acquired AJ Thompson Paper Recycling, pictured above.

Improving market conditions have underpinned a renewed interest in such activities, Mark Whelan, executive director of environmental finance at Ernst & Young, told MRW.

“Companies are telling us that the C&I market is still pretty tough, but there have been improvements in recent months,” he said.

The market had also seen some small improvements in recyclate selling prices: “Some of the materials prices are coming back - not at the levels of 2011, but they are moving in the right direction.”

This has prompted waste management firms to look at their portfolios and consider opportunities to improve efficiency through M&A.

Whelan said: “Some businesses are looking at where they may be sub-scale in a particular region, and seeing if the business would be more valuable to another operator that can realise some synergy benefits from merging the two operations in that region.”

He added that not only sales but also assets swaps - by which companies trade part of their business in exchange for a part of another business - could become more frequent.

But some of the recently announced deals have come under the scrutiny of the Office of Fair Trading (OFT).

For example, it is considering whether the sale of Sita’s metal division to European Metal Recycling could lessen competition in the sector.

The OFT will either refer the deal to the Competition Commission (CC), clear it or suggest amendments.It has also referred another Sita deal, the agreement with Tradebe to form a joint venture clinical waste management business, to the CC on 29 October.

“The joint venture raises competition concerns about the collection, processing and disposal of healthcare risk waste for large quantity generator customers around Birmingham and Gloucester,” said the OFT.

Whelan said that, in some areas such as clinical waste and metal recycling, which are characterised by some large players, the authorities’ scrutiny would be more likely, while it would be less common in others such as dry waste collection, where the market is more fragmented.

The numbers: recent business deals and activity

£9.5m: amount paid by Biffa to acquire Shanks’ C&I waste business

36%: share in Nicollin Group sold by Sita.

€550m: amount Veolia will pay to EDF to split energy subsidiary Dalkia

3.86 million: tonnes of steel processed in Europe by Tata Steel between July and September 2013.

6%: share of FCC Environment’s parent company acquired by co-founder of Microsoft Bill Gates

20.4%: increase in adjusted operating income reported by Veolia Environnement in the nine months to September 2013.

3%: increase in pretax profits reported by Shanks in the first half of 2013/14

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