The number of waste companies in the UK is expected to fall by a fifth over the next three years, according to financial consultant Grant Thornton.
In its Waste Sector Mergers and Acquisitions report, the company said reductions would be caused by consolidation of existing companies and the failure of others.
However, the health of the sector is not in doubt as consolidation is being driven in part by an increased interest in waste firms from trade buyers and private equity houses. The market is ripe for such activity because it is highly fragmented and fiercely competitive. Another contributing factor is the major role played by the private sector making the UK waste sector one of the most liberal in Europe.
Increasing sector consolidation was already evident from the quantity and value of such deals in the first quarter of 2008. Collective sector turnover was more than £7 billion in 2007, with year on year growth of about 7%, while merger and acquisition activity over the past two years was worth £5 billion.
Researchers found sector change was also being driven by technological and legislative change. Grant Thornton head of waste mergers and acquisitions Ali Sharifi said legislative change, such as the Waste Strategy and the Landfill Directive, is set to be the biggest driver of growth and consolidation in the future.
Legislative change had resulted in demand for a more integrated approach to waste management as well as the development of more advanced waste treatment technologies, such as thermal and biological treatments, he added.
The waste sector is already running counter to the current economic downturn in the UK with strong growth forecast for the short to medium term, Sharifi said.