"Conservative estimates suggest that in order to meet the Landfill targets and the Governments objectives, as laid out in their Waste Strategy 2007 paper, the level of incinerated municipal waste (MSW) will have to increase from 3 million tonnes per year today to 11.5 million tonnes by 2020 – and this requires investment of circa £5 billion in some 50 plants. Equally, the level of recycled and composted waste will have to increase from 6 million tonnes per year to 28 million by 2020. Based on the costs of existing PFI projects this cannot be achieved for less than £4 billion at today’s prices"
Mark Wilson, Research Director at Catalyst
acquisitions transactions during 2007 with a combined value of over £3.2 billion, according to recent research which also predicts a major increase in energy from waste (Efw) by 2020.
The researchers, Catalyst Corporate Finance, say that the M&A transactions have been largely driven by the sharp increase in recycling deals and consolidation by the integrated waste management providers.
The company found that there has been a major increase in average transaction values which escalated from £16 million in 2005 to £170 million in 2007, fuelled in large part by key deals such as FCC’s acquisition of the waste disposal business of Waste Recycle Group (£1.4 billion), Veolia Environmental’s acquisition of Cleanaway (£585 million) and ABN Amro’s secondary buyout of Cory Environmental (£588 million).
The EU Landfill Directive has been a key stimulant and recently further changes became effective in the UK on 30 October 2007, resulting from the Directive. From that date liquid wastes were banned from landfill and non-hazardous wastes were required to be treated before being deposited in landfill. This effectively made all wastes treatable, as hazardous wastes were already subject to treatment. The Directive is expected to continue to drive activity well beyond 2008, according to Catalyst.
Catalyst forecasts that the level of investment in recycling and incineration infrastructure is expected to exceed £9 billion over the next 10 years and this is likely to create more M&A activity within the waste sector.
The company says it’s report provides a review of the M&A activity during the last three years across the whole of the waste management industry. It recognises the activity of the private equity as well as the established majors.
The research predicts a major increase in incineration
Energy from waste
The research predicts rising valuations in the waste-to-energy sector (EfW), which is considered to be an integral part of any local authority waste solution, according to Catalyst.
Mark Wilson, Research Director at Catalyst said:
“Conservative estimates suggest that in order to meet the Landfill targets and the Governments objectives, as laid out in their Waste Strategy 2007 paper, the level of incinerated municipal waste (MSW) will have to increase from 3 million tonnes per year today to 11.5 million tonnes by 2020 – and this requires investment of circa £5 billion in some 50 plants. Equally, the level of recycled and composted waste will have to increase from 6 million tonnes per year to 28 million by 2020. Based on the costs of existing PFI projects this cannot be achieved for less than £4 billion at today’s prices.”
Mr Wilson continued:
“There have been 23 PFI waste diversion projects approved to date at a cost of £1 billion and a further seven projects are in the pipeline. This level of activity is going to have to rapidly increase and the Government will have to commit significantly more than the £2 billion of PFI credit funding it earmarked to help local authorities in the recent Comprehensive Spending Review. If we try to get close to European best practice, as seen in countries such as Denmark, funding will be easily in excess of £10 billion.
“2008 should bring further consolidation, but not at the same pace as the last year. Many businesses remain attractive targets for the larger firms, though the credit crunch is likely to have an effect on valuations as private equity firms will find it harder to structure and fund deals at the top end.”
Further information
Catalyst Corporate Finance
Catalyst says that it is a leading independent corporate finance advisory firm and was recognised by the 2007 Acquisitions Monthly awards as the Independent Corporate Finance House of the Year. With a focus on providing strategic corporate finance advice to quality owner managed businesses, public companies and management teams, Catalyst is committed to supporting clients in growing and realising their shareholder value.
Catalyst has acted as lead advisor on transactions totalling over £1.5 billion in the last two years, has completed transactions across a range of sectors and deal types and has a track record of working with shareholders throughout the investment lifecycle to realise significant equity gains, according to the company.
Web site: www.catalystcf.co.uk