Shanks has reached an agreement to sell its industrial and commercial (C&I) waste business to Biffa in a £9.5m deal.
Shanks is disposing of its UK solid waste business, which collects, sorts, and processes C&I waste.
The majority of the business will go to Biffa. Shanks’ 300 workers will transfer to Biffa under TUPE arrangements.
The rest, namely Shanks’ Blochairn and Kettering Materials Recycling Facilities (MRFs) will be sold in a separate transaction to an undisclosed company.
Another MRF in Elstow will be retained and converted to process municipal solid waste.
Shanks said that sale was part of a strategy of exiting “loss-making” operations and focusing on the organics and municipal waste markets where it has a sustainable competitive advantage and can deliver “attractive returns”.
Peter Dilnot, Shanks chief executive, said: “We are exiting a market where we are sub-scale and not positioned to win, and focusing our UK operations on our growing UK municipal and organics businesses.”
The assets that Shanks is disposing of generated £55.4m in revenues in the year ended 31 March 2013, with operating losses of £3.6m. Operating profits in the segment decreased 239% year-on-year.
Shanks described Biffa as “a market leader in UK solid waste” and an “ideal owner of the disposal assets”.
Biffa said that the acquisition of Shanks’ UK Solid Waste business will enable the company to channel more waste into recycling and energy-from-waste facilities, leading to growth in its energy and processing operations.
Ian Wakelin, Biffa’s chief executive, said: “This acquisition will enable us to leverage our national infrastructure, grow our market share and enhance our leading industrial and commercial services.”
The integration of Shanks’ business is likely to take a number of months, said Biffa. There will be no disruption to services during this period, it added.
Paul Levett, industry non-executive director, told MRW: “The deal makes good strategic sense for Biffa and should deliver volume growth to offset recessionary shrinkage, as well as important synergies in the form of improved vehicle route density and utilisation of processing infrastructure.
“The C&I business is all about local market share and Shanks’ business was probably spread too widely geographically to optimise profitability. They already have some PFI wins, but longer term growth in municipal solid waste (MSW) processing may be difficult as most contracts have already been awarded. MSW collection remains as intensely competitive as ever but opportunities may arise from service changes due to TEEP.”
Mark Whelan, executive director of environmental finance at Ernst & Young, said the agreement represented a good deal for both parties.
The move was also “a significant sign” that the industry was entering a new phase after a long period of increasing costs of landfill diversion, and a decade of significant investment backed by the PFI regime.
He expected the acquisition to be the “first of many similar deals to come”.
“For a highly fragmented sector, with an arguably large number of operating companies, consolidation seems to be the only way forward.
“As capital for acquisitions remains constrained, more frequent use of asset swaps and reorganisations shouldn’t come as a surprise.”
The waste industry has been hit hard by the recession in recent years, with falling volumes and recyclate prices resulting in all of the major firms reporting profits and revenues down. Restructure and consolidation deals were therefore inevitable, other industry insiders have also said.
Jacob Hayler, economist at the Environmental Services Association, said: “The industry is now well placed to put the recession behind us and look to exploit the huge potential of the circular economy.”
- More to follow
- Read MRW’s Big Interview with Peter Dilnot