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Sector deals buck economy trend

Business deals in the waste sector soared during 2012 despite the continuing sluggish state of the economy.

A report by accountant Grant Thornton, An ever changing landscape: Waste and environmental services in the UK, said there had been a 60% increase in industry deals, from 15 in the first half of last year to 24 in its final six months. 

Grant Thornton director and head of waste Mike Read said forecasts from the Office of National Statistics showed the recycling sector was expected to grow by 4% during 2013-14, and waste management by up to 3.1%.

He said this relatively strong growth, compared with the economy as a whole, was due to “greater consumer awareness of the importance of recycling and corporate responsibility [which] has increased the levels of recycling performance across both the municipal and commercial sectors”.

Read said the trend for more deals would continue because of the industry’s fragmented nature and the desire by companies to consolidate.

“It’s becoming less fragmented but you still have everything from the traditional waste collector through to service companies coming into the market,” he said.

Deal volumes have still not scaled the heights seen in 2011, but matched pre-recession levels, with 39 recorded in 2012, the same as in 2008 but down on the 48 recorded in 2011.

Recycling accounted for 39% of deals in 2012, down from 50% in 2011.

The report commented: “It is likely that weak commodity prices and the difficult economic environment have dampened activity in the recycling sector this year.”

Alternative technologies gain momentum

Read said anaerobic digestion and advanced thermal treatment processes, such as gasification and pyrolysis, were now gathering momentum “after many false starts in the past, are now genuinely seeing some money go into it because deals are coming to market that are bankable. That is becoming self-sustaining as more deals come, so more will follow.”

“With the right raw ingredients of feedstock, technology appropriate to the feedstock, and off-takes they are becoming bankable,” he said.

“In the right circumstances, given the tariff support that can accrue, they are an alternative to traditional large scale energy recovery facilities.”

Energy production ‘fundamental’

Energy from waste accounted for 8% of deals in 2012, compared with 2% in 2011. “This segment of the market has suffered from instability in recent times but while legislation continues to drive investment in waste treatment technologies, growth is likely to remain consistent into 2013 and beyond,” it said.

Energy production had in the past been seen as a bonus when developing waste facilities, “but it is now often the fundamental factor driving the economics of these projects”, Read said.

New sources of finance had also become available, from the Green Investment Bank and institutional investors, such as Foresight, Iona Capital, Tamar Energy and Eternity Capital.

“This is important as both project finance sources and the balance sheets of the major waste contractors cannot deliver all the required investment,” he said.

Ensuring quality

Grant Thornton said there had been a lot of activity in materials recycling facilities and recyclate reprocessing infrastructure.

“The strides made in terms of technology in this area have been rapid, and is clearly critical given the importance of quality of materials to ensuring that recycling is economically viable as well as environmentally the right thing to do,” its report noted.

Deals by waste industry sector

  • Recycling 39%
  • Consultancy 20%
  • Energy efficiency 10%
  • Waste management 8%
  • Energy from waste 8%
  • Hazardous and industrial waste 7%
  • Compliance and technical 3%
  • Environmental offsets trading 2%
  • Medical waste 2%
  • Other environmental services 2%

Deals within recycling sector by type

  • Paper 38%
  • WEEE 17%
  • General 17%
  • Plastic 12%
  • Organic 8%
  • Metal 4%
  • Textile 4%

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