grant thornton - an ever changing landscape: waste and environmental services in the uk - waste...

WASTE AND ENVIRONMENT GROUP ANNUAL REViEW 2011

An ever changing landscapeWaste and environmentalservices in the UK

2 An ever changing landscape Waste and environmental services in the UK 2011

Contents

03 introduction

04 Sector drivers

11 Current issues

16 M&A activity and trends

20 Grant Thornton in the waste and environment sector

21 Case study: OSS Group

22 Case study: Tradebe

23 Case Study: DCC plc

24 Case study: Avondale

25 How we can help

27 Appendix

An ever changing landscape Waste and environmental services in the UK 2011 3

WelcomeWelcome to the fi fth edition of our annual ‘Ever changing Landscape’ series. As in previous years we have aimed to provide an overview of the key issues affecting the sector in 2011 as well as reviewing M&A trends over the last year. The sub-sectors covered by our annual report are detailed below.

Our latest edition also provides an update on key issues directly affecting your business such as the taxation regime within the waste and environmental sector and the impact of Government policy

As ever, we would be interested in your feedback on our report. If you have any comments please let us know by contacting either ali.sharifi @uk.gt.com or [email protected].

Introduction to our 2011 Annual Report

integrated waste

Recycling

Hazardous and clinical

Waste technology

industrial and commercial

Energy from waste

Landfi ll

Environmental consultancies

Compliance and technical advice

Carbon and other assets trading

Other general environmental

services e.g. street scene, arboriculture etc.

Buildings

Transport

Automation and control systems

Smart metering

Smart grids

Pollution control technologies

Environmental sensing and testing

products

Clean-up and remediation

Waste Environmental support services

Energy effi ciency

Pollution control

Section 1:Sector drivers


2011 Market Drivers

The waste and recycling market in England during 2011 has continued to develop in line with DEFRA’s priorities which are essentially driving down waste volumes and increasing recycling effi ciency.

Government priorities(source DEFRA, June 2011)• greater focus on waste prevention

and resource effi ciency, within the waste and resource management sector and working with customers

• achieving higher levels of recycling, by helping customers do the right things

• levels of quality for recyclable materials that enable the UK to meet its obligations under the revised Waste Framework Directive and the waste shipment controls, and ensure the UK recycling system can withstand sudden changes in market specifi cations

• in keeping with localism, engaging further with local communities to improve or maintain a high level of public confi dence in the waste and resource industry, and foster acceptance of new infrastructure.

These priorities are backed up by national and European legislation which manifests itself in higher levels of waste treatment (rather than landfi ll), growth in the use of recycled materials and ever increasing use of technology and automation to deliver these.

These trends are starting to become evident in corporate activity as, for example, landfi ll operators now need to add value to waste streams in order to generate returns and retain contracts. Within some subsectors (such as wood waste), as advancing technology is diversifying the customer base (for example into biomass plants), securing long term supplies of consistent quality waste material is becoming a key priority for businesses.

Evidencing the progress that’s been made, recycling rates continue to increase with the Welsh government recently confi rming they have reached a 49% rate in the 4th quarter of 2011 and have the best rate in the UK (average across the country of c. 40% in 2011 – DEFRA); back in 2000/01 they were at 7% and targets are now 75% for 2025 and zero waste by 2050.

From an investment and borrowing perspective the drivers remain the same, proven technology and predictable or secure supply and off-take arrangements. The impact of the Green Investment Bank (GIB) has yet to be determined but the fi rst priority sectors have been announced with commercial and industrial waste processing and recycling and energy from waste being two of the fi ve sectors. GIB will be a key component of the progression towards a green economy, complementing other green policies to help accelerate additional capital into green infrastructure. The Government will capitalise the GIB at £3 billion and expects to obtain state aid approval for the GIB by early 2013. In advance of that, the Government will begin making investments in green projects, including waste, from April 2012.

Whilst rising fi nance has remained diffi cult, M&A volumes surpassed expectations in 2011 with a record number of deals in the waste sector. This was driven by an increasing level of investment by overseas parties combined with a particularly high number of acquisitions of both Paper and WEEE recycling companies.

Market dynamics

“Our business simply couldn’t grow as a pure

landfi ll business - we needed to invest to add value to waste streams and the MRF is just the

beginning”

Derek Cooper, Chairman, Avondale Environmental Ltd


One of the hottest topics recently has been the proposals to amend the Waste (England and Wales) Regulations 2011 which transpose the requirements of the revised Waste Framework Directive into domestic law. These bland titles hide the debate on ensuring the quality of recycled materials with on one side the Campaign for Real Recycling saying that the European law requires collection of separate waste streams and on the other the lobby that considers properly run Material Recycling Facilities (MRFs) processing comingled materials will produce the same result. Government has launched a consultation on a code of practice for MRF operations but we can expect that this debate will carry on through 2012.

During 2011, the waste and environmental services sector indices have underperformed the benchmark FTSE 100 and All Share indices, the fi rst year this has occurred. This could be indicative of the uncertainties within the environmental space. The sharp drop in the indices during the summer of 2011 and fl uctuations during the fi nal quarter of 2011 refl ected the turmoil in the fi nancial markets due to the Greek bailout and Eurozone crisis.

£60

£70

£80

£90

£100

£110

£120

30/1

2/20

11

25/1

1/20

11

28/1

0/20

11

30/0

9/20

11

26/0

8/20

11

29/0

7/20

11

24/0

6/20

11

27/0

5/20

11

29/0

4/20

11

01/0

4/20

11

04/0

3/20

11

04/0

2/20

11

31/1

2/20

10

FTSE Environmental Opportunities Waste and Pollution Technology – price index £

FTSE Environmental Opportunities Energy Efficiency – price index £

FTSE Environmental Opportunities All Share – price index £

FTSE All Share – price index £

FTSE 100 All Share – price index £

Chart titleSource:

“We continue to see the waste and environmental space as a key growth sector, as the legislative

agenda continues to push development and growth. That said, investment is becoming harder for

businesses in the sector, as availability of capital becomes more limited, and uncertainty over

funding remains”

Nigel Mattravers, Principal Consultant, Grant Thornton

7

Materials pricing update

Prices on the whole have been relatively fl at in 2011 with nearly all material types seeing fl at or decreasing prices at the end of 2011 when compared with the end of 2010. Recycled plastic prices continued to increase from the end of 2010 with clear and blue PET reaching a high of £395 per tonne in September 2011, before decreasing back down to £310 per tonne, a gain of over 10 per cent compared to the year-end price in 2010.

Plastic PRN prices increased during April to June 2011 and then steadily dropped towards the end of the year. The DEFRA target for plastics recycling increased from 29% in 2010 to 32% in 2011 which led to slight increases in price during 2011.

Glass PRN price picked up during the beginning of 2011 from its decline at the end of 2010, reaching a high of £`13.00 per tonne before gradually dropping steadily for the rest of the year.

After large fl uctuations in scrap steel prices in 2010, prices remained strong and stable during 2011, although PRN prices for steel and aluminium continued their downward trend during 2011. Steel PRN prices ending the year in 2011 at £2.00 per tonne, a historic low not seen since 2007. The drop in prices could be due to a number of factors. During the recession in 2008, less overseas buyers were purchasing materials so less PRNs were being produced, hence the value increased signifi cantly to a high of £85.00 per tonne during November and December 2008. As demand has increased during 2010, prices have dropped. Prices may continue to stay low during 2012 as DEFRA upped steel

packaging recycling targets from 69% to 71% for 2011 and 2012.

With export demand dropping at the end of 2011 and fears of a possible double dip recession, more pressure is expected on PRN prices. However, the number of exporters and UK reprocessors accredited to issue PRNs has fallen compared to this time last year. The decline in accreditations has prompted fears that UK recycling targets may be harder to meet in future if less recycling is recorded because fewer reprocessors issue PRNs. According to Environment Agency data, just 49 exporters and 120 reprocessors were approved to issue PRNs and their export

equivalent, PERNS, by January 27th 2012. At the same time Government has come out for consultation on a proposal to signifi cantly increase the targets for packaging recycling. For plastics the target could rise from 32% now to 57% by 2017. This dramatic increase could, in the opinion of some observers, increase the value of PRNs to £35-£65 rather than the £5 now. This increase in targets could provide good opportunities for the plastic industry but the timescale to deliver the necessary infrastructure will be tight.

8

0

50

100

150

200

250

300

350

400

450

Oct-11

Jul-1

1Ap

r-11

Jan-1

1Oct-

10Ju

l-10

Apr-1

0Ja

n-10

Oct-09

Jul-0

9Ap

r-09

Jan-0

9Oct-

08Ju

l-08

Apr-0

8Ja

n-08

Oct-07

Jul-0

7Ap

r-07

Jan-0

7

Clear glass container prices– delivered to collector

Clear and light blue PET – merchant

News and magazines – merchant

£ pe

r to

nne

0

10

20

30

40

50

60

70

Oct-11

Jul-1

1Ap

r-11

Jan-1

1Oct-

10Ju

l-10

Apr-1

0Ja

n-10

Oct-09

Jul-0

9Ap

r-09

Jan-0

9Oct-

08Ju

l-08

Apr-0

8Ja

n-08

Oct-07

Jul-0

7Ap

r-07

Jan-0

7

Glass

Paper

Plastics

£ pe

r to

nne

Mixed energy recovery

Wood

0

50

100

150

200

250

300

Oct-11

Jul-1

1Ap

r-11

Jan-1

1Oct-

10Ju

l-10

Apr-1

0Ja

n-10

Oct-09

Jul-0

9Ap

r-09

Jan-0

9Oct-

08Ju

l-08

Apr-0

8Ja

n-08

Oct-07

Jul-0

7Ap

r-07

Jan-0

7

No 1 old steel scrap

No 2 new steel scrap

12A new production heavy steel scrap

£ pe

r to

nne

Median recovered paper, glass and plastic prices

Jan 2007 - Dec 2011

Source: Letsrecycle.com

Median PRN prices – £ per PRN/one tonne of mate-

rial Jan 2007 - Dec 2011Source: Letsrecycle.com

Ferrous metal pricesJan 2007 - Dec 2011

Source: Letsrecycle.com


Legislative landscapein 2011

Waste policy in England 2011Defra released the long-awaited waste policy review and action plan for England in June 2011. The review brought key objectives for the Government in relation to the waste industry

The EU Waste Framework Directive calls for 50% of household waste to be recycled by 2020, to recover 70% of construction and demolition waste by 2020 and for a 35% reduction in biodegradable municipal waste landfi ll by 2020.

The Waste (England and Wales) Regulations 2011 transpose the revised EU Waste Framework Directive into law and make some changes to the way waste is managed in England and Wales. They came into force on 29 March 2011.

Energy Bill/Energy Act/Green Deal/Energy Company ObligationIn October 2011, the Energy Bill received Royal Assent and became the Energy Act 2011. The Green Deal creates a new fi nancing framework to enable the provision of fi xed improvements to the energy effi ciency of households and non-domestic properties, funded by a charge on energy bills that avoids the need for consumers to pay upfront costs.

The Energy Company Obligation (ECO) take over from existing obligations to reduce carbon emissions (the Carbon Emissions Reduction Target (CERT) and Community Energy Saving Programme (CESP)), which expire at the end of 2012. The ECO will work alongside the Green Deal fi nance offer

by targeting appropriate measures at those households likely to need additional support.

On 24 November 2011, £200m of new and additional Government funding was announced to provide a special time-limited ‘introductory’ offer to boost the early take up of the Government’s Green Deal energy effi ciency scheme.

Electricity Market ReformOn 12 July 2011 the Government published ‘Planning our electric future: a White Paper for secure, affordable and low-carbon electricity’. The White Paper sets out key measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources including gas, new nuclear, renewables, and carbon capture

and storage. Key elements of the reform package include:• a Carbon Price Floor to reduce

investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation

• the introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable fi nancial incentives to invest in all forms of low-carbon electricity generation.

Publication of the White Paper marks the fi rst stage of the reform process. The Government intends to legislate for the key elements of this package during the latter half of 2012, and for legislation to reach the statute book by the end of Spring 2013, so the fi rst low-carbon

On 24 November 2011, £200m of new and additional Government funding was

announced to provide a special time-limited ‘introductory’ offer to boost the early take up of the Government’s Green Deal energy

effi ciency scheme.


projects can be supported under its provisions around 2014.

Feed in tariffsOn 7 February 2011, the Government announced the fi rst comprehensive review of the Feed-in tariffs (FITs) scheme for small-scale low-carbon electricity generation. The Comprehensive Review Phase 1 for solar PV closed on 23 December 2011 (discussed further in “Funding Uncertainties”). In the fi rst part of 2012, the new tariffs for solar PV were confi rmed, with FITs being reduced by over 50% from 1st April, with a further step down in July and 5-10% reductions every six months thereafter. The tariff is to be pegged to cost reductions and industry growth, in order to provide an element of certainty for investment.

Renewable Heat IncentiveThe Renewable Heat Incentive for non-domestic generators opened for applications on 28 November 2011 with the fi rst successful applicants announced in January 2011. The Government has provided £860 million in funding. The start of the scheme follows a short delay while DECC resolved the scheme’s compatibility with EU state aid rules and re-submitted the draft regulations to Parliament. Organisations will be able to apply to Ofgem for support under the scheme from Monday 28 November and will receive payments on a quarterly basis for heat generated over 20 years. During the fi rst quarter of 2012 the Government has announced that support for domestic generators will

not commence until late 2013, though there are capital grants (RGI Premium Payments) available before then.

CRC Energy Effi ciency SchemeThe CRC is a mandatory scheme aimed at improving energy effi ciency and cutting emissions in large public and private sector organisations. The CRC began in April 2010. In June 2011 the Department of Energy and Climate Change (DECC) published proposals to simplify the Scheme in an effort to further reduce the administrative burden on businesses. DECC will consult on draft legislation in February 2012 and the changes will come into force from April 2013.

Anaerobic Digestion Strategy and Action Plan for EnglandThe Anaerobic Digestion Strategy and Action Plan for England was published in June 2011 by DEFRA. Key actions in the Government’s Anaerobic Digestion (AD) strategy and action plan include guidance on the cost and benefi ts of AD to developers and local authorities, evidence on the value of digestates, developing skills and training for AD operators, and highlighting ‘best practice’ projects that deliver community benefi ts.

On 7 February 2011, the

Government announced the fi rst

comprehensive review of the Feed-in tariffs (FITs) scheme for small-scale low-carbon electricity

generation.

Section 2:Current issues


Funding uncertainties

Investor Confi dence is Not Being Helped by Government

Nigel Mattravers, principal consultant within Grant Thornton’s Waste and Environment team, comments on Investor confi dence in the waste sector.

It was always generally understood that the British Government stuck to agreed policies and would not act retrospectively but in the last year or so this belief has been upset by Government’s actions and so has unsettled the waste funding market.

Over recent years successive governments have encouraged new waste treatment technologies with support schemes including, amongst others, the Renewable Obligation scheme (RO) and more latterly Feed in Tariffs (FITs) and the Renewable Heat Incentive (RHI). Increasingly, however, government has sought to bring these incentives under more regular review and this has brought nervousness amongst potential investors. The fi rst ripple in the pond of support was following a review of the RO regime for new technologies and in particular ‘grandfathering’ rights. It took a few months to resolve the jitters aroundthe issue.

But it was the changes to the FITs for solar PV that really put the cat

amongst the pigeons. In the case of large solar farms Government did act retrospectively in withdrawing FITs support for such energy facilities and this caused many well developed projects to collapse. The Government’s next action to call for consultation on domestic solar PV tariffs with a proposal to retrospectively change the value of the tariffs, led to a court case which Government subsequently lost. Although all of these actions concerned only support for solar PV, the whole renewable funding sector became increasingly nervous. The Government has now brought out a further consultation on non-solar projects and with it further uncertainty for investors.

As one funder commented “how do I know what number to put into my fi nancial model when the tariff could change twice before the plant comes on line!”

All of this debate about the FITs regime has been at a time of other changes with the RHI launch having been delayed, the proposed changes to the banding within the RO scheme and the uncertainty over the Electricity Market Reform. And at a time of global investment uncertainty investor confi dence in the waste sector is waning. Government please stop tinkering and give the investors certainty; the size of the prize does not matter at much as knowing what the prize will be.

“How do I know what number to putinto my fi nancial model when the tariff could change twice before the plant

comes on line!”

Anonymous


Tax update

Landfi ll tax

There is a degree of uncertainty in the Waste sector as to whether landfi ll tax is due at all where the landfi ll site operator intends to use the materials that pass over their weighbridge. The law has developed radically since 2008 and a further challenge has been raised in the courts, the fi rst hearing of which took place in March 2012. A signifi cant amount of landfi ll tax is at stake. All affected businesses should make relevant claims to protect against time limits as it is likely to be a number of years before a fi nal decision is reached by the courts.

What is the opportunity for businesses? • Landfi ll customers should consider

whether they can recover landfi ll tax paid to a landfi ll operator where it should not have been charged. The customers should review the last six years.

• Landfi ll operators should review the day to day use of materials received and make a claim against HMRC, limited to last four years, for recovery of landfi ll tax, where they have not done so already, in order that they are able to fund any customer claims.

What has created the uncertainty?A landfi ll tax case heard in the Summer of 2008 ‘HM Revenue & Customs v Waste Group Recycling,’ known in the sector as the WRG case, radically altered the landscape. • The case centred on whether the

intent to dispose of material that

mattered was the intent of the customer or the landfi ll site operator.

• The case determined that it was the intent of the owner of the material that mattered, and the owner of the material is the landfi ll site operator.

• The landfi ll site operator intended to use the material in, for example, site engineering, and as such there was not a disposal for landfi ll tax purposes.

• If the landfi ll site operator intends to use the material then it is not subject to landfi ll tax.The principle established in the WRG

case has wide implications for the tax, as a modern day landfi ll site is a recovery and reuse business rather than a disposal business.

HMRC responseHMRC were aware of the wider implication of the WRG case and therefore introduced some new rules, from 1 September 2009, that made certain uses subject to landfi ll tax.

Uses subject to landfi ll tax• Cover material for short periods

of time.• Temporary hard standing.• Cell bund.• Temporary screening bund.• Material placed against the liner /

drainage layer to protect the liner / drainage layer.

• Temporary storage of ash.Uses should be identifi ed that may

not be subject to landfi ll tax (i.e. uses outside the above list).

OperatorsLandfi ll operators should review their business model and day to day site operations to establish if they intend to use materials for purposes outside of the list.• Those uses may not be subject

to landfi ll tax if the landfi ll site operator can demonstrate its intent. For example, the majority of landfi ll sites are producers of renewable electricity and therefore source materials to use as fuel.

• HMRC consider uses outside the list as subject to landfi ll tax. There are a number of challenges ongoing due to the uncertainty regarding the legal basis.

• The risk of doing nothing is substantial as the business exposes itself to claims from customers without being able to recover landfi ll tax from HMRC.

• The operators should consider making a protective claim as a minimum.

CustomersLandfi ll customers should review their contracts with landfi ll operators.If HMRC is unsuccessful in their view of the legislation, then landfi ll customers may be due a repayment of tax from the landfi ll site operator through contract law (depending on the nature of their arrangement). A protective claim should be considered as a minimum.


Tax update

Capital expenditure – tax relief

BackgroundThe tax relief available on capital expenditure is a ‘hot topic’ for any capital asset intensive business in these challenging economic times. This is particularly relevant for the Waste sector which is responsible for the development of the next generation of the UK’s waste infrastructure and contributing to the UK’s renewable energy needs.

DevelopmentThe sector is undertaking a signifi cant amount of expenditure. It is devoting manpower and expertise to develop technologies that discover ever more innovative products from wall insulation to new fuels, and abilities to sort and recycle materials to enhance recoverability.

Changes to tax relief over recent yearsThe Government has part funded the reduction in the corporation tax rates from 28% to 22% by reducing the tax relief available on capital expenditure,

fi rstly with the phased withdrawal and abolition of industrial building allowance in 2008 and secondly with the reduction in the tax depreciation on plant from 25% to 20% and then a further reduction to 18% for the 2012 fi nancial year.

The drawback of this approach is that clearly this has had a negative impact on the long term view of investment in the UK waste sector it effectively reduces the tax benefi ts of such investment.

TechnologiesA further diffi culty for capital investment in the waste sector is that many technologies have ‘signifi cant structures’ i.e. many will be housed in large buildings, which are unlikely to get tax relief for, for example: • Energy from Waste;• Composting Facilities;• Mechanical Biological Treatment;• Anaerobic Digestion;• Materials Recovery Facility.This further complicates the fi eld, and can make policies appear to be mis-aligned - on the one hand the sector is being asked to undertake innovation and development, but at the same time there is complexity around available tax reliefs, and a decline in levels of relief available for capital investment.

However despite the doom and gloom, there are still a number of tax incentives available to investors including:


Projects should be fully assessed to identify all items of plant. This can be wide for tax purposes and will include bunds, push walls, odour systems, CCTV, etc that may be building for accounting purposes.

Where assets are under construction and the business is trading it is sensible to identify the plant and claim tax depreciation as the expenditure is incurred.

Where a signifi cant amount of innovation and development is undertaken, some of the expenditure should qualify for research and development tax relief.

If the projects under construction are receiving capital grants or subsidies then make sure the agreements specify the funds are intended for certain capital expenditure that will not qualify for tax depreciation.

A number of the projects under construction are constructed in accordance with the BREEAM standards for sustainability. This will invariably mean that there are a number of assets that qualify for enhanced capital allowances (100% tax write off in year 1).

The Government has made enhanced capital allowances available in the Anaerobic Digestion i.e. biomass, and Combined Heat and Power plant sectors to specifi cally encourage innovation, investment, and roll out across the UK.

Consider entering contracts with long term guaranteed tariffs i.e. RHI. These tariffs provide a level of return that is intended to cover the innovation and development and compensate for the capital expenditure that may not receive tax relief.

If the expected economic life of the asset is less than two years is the expenditure revenue in nature and therefore tax deductible.

Key points for investors to consider

Section 3:M&A activity and trends


Historic deal volumes– waste sector

Deal volumesDespite on-going economic uncertain-ties in the UK and European market, M&A volumes surpassed expectations in 2011 with a record number of deals in the waste sector.

This was in part driven by an increas-ing level of acquisitions made by over-seas parties (11 deals in 2011 vs 8 deals in 2010). Most notably of all however was the signifi cant increase in acquisitions of paper recycling companies (7 deals in 2011 vs 1 deal in 2010) and WEEE recycling companies (5 deals in 2011 vs 2 deals in 2010).

Based on fi gures this year we expect 2012 deal volumes to remain relatively constant with 2011.

Note on data collectionPlease note that for comparison pur-poses the deal volume charts above are for waste deals only. As we have only started collecting data on energy effi -ciency and environmental services M&A recently we will only be able to provide historical comparisons of these ‘new’ subsectors from our next annual review. In the meantime please see the next page for further details of the full sector breakdown for 2011 which provides a snapshot of the market over the last 12 months.

201120102009200820072006

28

24

39

33

37

48

Q42011

Q32011

Q22011

Q12011

Q42010

Q32010

Q22010

Q12010

9

11

89

14

11

9

14


Deals in 2011 by type

Recycling 50%

Energy efficiency 17%

Consultancy 10%

Hazardous and industrial waste 7%

Waste management 4%

Waste equipment 4%

Medical waste 2%

Energy from waste 2%

Other environmental services 2%

Compliance and technical 2%

General 26%

Paper 23%

Organic 16%

Metal 13%

WEEE 16%

Plastic 3%

Glass 3%

Deals by subsectorOur sector review continues to highlight the growing importance of the consultancy and energy effi ciency space– this sub-sector now represents over ¼ of total deals in 2011.

The continued activity in the consultancy and energy effi ciency sub-sectors perhaps indicates businesses are buying-in these capabilities as these markets remain buoyant.

The chart also illustrates the continuing concentration of deal volumes in the recycling, hazardous

Recycling deals Once again we have broken down recycling by material type as this is the most popular subsector in terms of M&A volumes.

The growing trend towards WEEE, has been partially driven by the acquisitions made by Australia based

waste and waste management sectors, being areas that tend to be made up of a large number of smaller-businesses, providing opportunities for businesses to grow by consolidation.

We forecast that the leaning towards niche/specialist companies will continue going forward with the subcategories of energy from waste and organic waste recycling accounting for the greatest number of transactions, in addition to signifi cant opportunities in energy effi ciency.

Sims Metal Management Limited of two UK based mobile phone recycling companies.

The paper subsector continues to represent around a ¼ of deals in 2011 with Spain based SAICA making two acquisitions to build on the deals in Q1 involving PHS Datashred.

In line with trends seen in previous years, organic waste also continues to represent a substantial number of deals with interest remaining in new waste treatment technologies, and in particular AD. Given this continuing interest in waste to energy technologies we would expect this trend to continue into 2012 and beyond.

Number of deals by subsectorSource: MergerStat

Number of recycling deals by typeSource: MergerStat

“We are continuing to advise a high number of corporates who see acquisition as a key means of expanding in the waste and environmental sector. Many are seeking to secure access to waste, as control of feedstocks continues to be vital across many sub-sectors.”

Ali Sharifi , Partner, Grant Thornton UK LLP

“We are continuing to advise a high number of corporates who see acquisition as a key means of expanding in the waste and environmental sector. Many are seeking to secure access to waste, as control of feedstocks continues to be vital across many sub-sectors.”

Ali Sharifi , Partner, Grant Thornton UK LLP


Selected key deals in 2011

General Recycling

Viridor Waste Management Ltd’s acquisition of Community Waste Holding Ltd for £15.75m

Mr Colin Drummond, Chief Executive of Viridor stated, “Recycling is a fast growing part of Viridor’s business and accounted for around 31% of the Company’s profi t contribution in the fi rst half of fi nancial year 2011/12. Community Waste’s operations iprovide additional volumes for our international trading arm. The acquisition is expected to be earnings enhancing in its fi rst full year.”

Organic Recycling

Stobart Group Ltd's increased its shareholding in Stobart Biomass Products Ltd from 50 to 100% for £20m

Mr Andrew Tinkler, Chief Executive Offi cer, commented: "Since listing in 2007 we have delivered consistently good performance with substantial growth in all areas of the business and also been able to invest in other areas of high growth potential such as Biomass. We are now a diverse company with risk and returns spread across a number of sectors. "

Paper Recycling

Sociedad Anonima industrias Celulosa Aragonesa SA's acquisition of Stirling Fibre Ltd for an undisclosed sum

SFG managing director Mr Forbes Connor stated: “Stirling Fibre has always been a huge supporter of the UK paper making industry and we are delighted to be part of one of the largest recyclers of packaging in Europe. I fi rmly believe that the Stirling Fibre Group is joining the right organisation and we all look forward to developing and growing Saica Natur in the UK.”

Organic Recycling

4R (Group) Ltd' acquisition of ByProduct Recovery Ltd for an undisclosed sum

Mr Mike Holt, Managing Director of 4R Group, stated “We are delighted to welcome the ByProduct Recovery staff into 4R Group, and we see a bright future for ByProduct Recovery. Across the Group as a whole we strive to provide industry with cost effective, environmentally benefi cial options for managing wastes more sustainably, diverting waste from landfi ll and manufacturing recycled products as part of the drive for a greener economy.”

Hazardous and industrial waste

DCC Environmental Britain Ltd's acquisition of Oakwood Fuels Ltd for £29.681m

Mr Tommy Breen, Chief Executive of DCC plc said, "The acquisition of Oakwood will broaden DCC Environmental's service offering into additional complementary waste streams in Britain and capitalise on the trend towards more sustainable waste management and in particular increased waste recovery and recycling. "

Paper Recycling

Viridor Waste Management Ltd's acquisition of Martock Waste paper Ltd for £7.4m

As stated above, the purchase is in line with Viridor's plans to expand its waste management activities, especially in the recycling sector.

Sub-sector Deal Rationale / commentary

Section 4:Grant Thornton in the waste and environment sector


Case study:OSS Group

OSS Group, one of the largest waste management companies in the UK, headquartered in Knowsley, has completed the acquisition of Hall and Campey Environmental Services for an undisclosed sum.

OSS employs some 170 people at sites across the UK. The company, which is backed by UK mid market private equity house Dunedin, was advised by Grant Thornton’s Liverpool-based corporate fi nance team and Pinsent Masons Manchester based corporate law team.

OSS specialises in collecting waste lubricating oils and recycling them into environmentally-friendly alternative fuels. The company has just launched its latest processed fuel oil product, Gen3™, which has applications in industrial and process heating, glass production, dairies, brewing and food processing.

Hall and Campey is an industrial waste management company primarily operating in the Midlands and East Anglia, which also specialises in the disposal of similar waste streams.

“Adding the regional strength of Hall and Campey to our existing national service creates a much stronger organisation in terms of total UK coverage. it operates similar services to OSS and will continue very much as now but with the benefi t of the OSS infrastructure, additional customer services and market leading Gen3™ technology.”

Iain LeesActing Group Managing DirectorOSS Group

OSS Group

Acquisition of Hall and Campey Environmental Services LimitedHazardous garage and workshop waste

£undisclosed October 2011

Grant Thornton provided corporate fi nance advisory services

OSS GROUPOSS GROUP

“OSS is a long-standing Grant Thornton client and we are delighted to be able to close this deal which will provide the fi rm with the feedstock necessary to continue to grow and develop their innovative patented waste recovery process as well broadening the OSS product offering.”

Mark Steel Grant Thornton


Case study:Tradebe

Tradebe Environmental Services Limited (Tradebe) is a leading global specialist waste management company.

In September 2011 Tradebe acquired Solvent Resource Management Limited (SRM). The acquisition of SRM makes Tradebe the leader in the UK hazardous waste management market. Tradebe now has 19 sites in the UK.

As the market leader in the UK, Tradebe can offer a full range of hazardous waste disposal and recycling services to Tradebe’s and SRM’s customers.

Through continuing investment in acquisitions, introduction of new technologies and improvements to production facilities, Tradebe’s global sales have grown from 40 million euros in 2000 to approaching 300 million euros today. With the SRM acquisition, Tradebe will now each year manage globally well over two million tonnes of waste.

Grant Thornton provided both fi nancial and tax due diligence to Tradebe.

“We selected Grant Thornton to assist us in the fi nancial and pensions due diligence work on the SRM deal due to the strength of their proposal and in particular their previous work within the sector. Their due diligence work was focussed and the fi nal report was a valuable contribution to the deal process setting out a clear but detailed fi nancial analysis of the target.”

Robert AllenUK Corporate DirectorTradebe

Tradebe Environmental Services Limited

Acquisition of Solvent Resource Management Limited (SRM) Organic waste materials disposal£undisclosed September 2011

Grant Thornton provided fi nancial due diligence services

“We are pleased to have worked with Tradebe on their acquisition of SRM. The acquisition of SRM will bring major benefi ts to both Tradebe’s and SRM’s customers as the range of services available is enhanced. We wish Tradebe every success with the integration of SRM and as it continues to expand. ”

David Grundy Grant Thornton


Case study:DCC plc

Oakwood Fuels, based in Nottinghamshire, has been sold in a deal worth up to £30m. The company, which collects waste lubricant oil and hazardous waste from businesses, was purchased by DCC Environmental Britain, based in Ireland. Steve Tooley, managing director of Oakwood Fuels, said the move would support the company’s rapid expansion plans.

DCC is a sales, marketing, distribution and business support services group. The company completed the acquisition on behalf of its subsidiary, DCC Environmental Britain.

Bilsthorpe-based Oakwood collects refuse from businesses in a variety of sectors and converts the waste oil to processed fuel oil (PFO).

The PFO is then sold to customers for use in a variety of applications including road surfacing operations, aggregate drying, industrial and agricultural drying, power stations, large boilers and furnaces.

Oakwood, which employs 105 people in Nottinghamshire, recoded adjusted operating profi t if £2.2m for the year ending 30 September 2010, on revenue of £9.3m.

Grant Thornton Corporate Finance advised on this transaction.

“The evolution of Oakwood in becoming a fuel manufacturer has propelled the business into new markets. The decision to sell the business and become part of a larger group will support Oakwood’s rapid expansion plans whilst DCC’s own environmental arm will benefi t from the technological expertise in the waste processing sector.”

Steve TooleyManaging DirectorOakwood Fuels

DCC plc

Acquisition of Oakwood Fuels LimitedWaste oil processing

£undisclosed June 2011

Grant Thornton provided fi nancial due diligence services

“The acquisition of Oakwood will broaden DCC Environmental’s service offering into additional complementary waste streams in Britain and capitalise on the trend towards more sustainable waste management and in particular increased waste recovery and recycling.

Tommy Breen Chief ExecutiveDCC plc


Case study:Avondale Environmental Holdings

Avondale Environmental is set to create one of Europe’s leading waste recycling centres following a £17m funding package put together in Manchester, led by HSBC Corporate Banking. The landfi ll operator is developing its existing site at Falkirk, near junction 4 of the M9 motorway, into a leading edge recycling facility. It will process some 200,000 tonnes of household and commercial rubbish, vastly reducing the amount going into landfi ll.

The Manchester offi ce of HSBC provided the funding from their corporate and asset fi nance teams and the Manchester offi ce of Grant Thornton advised Avondale throughout the funding process.

Avondale has a range of public and private sector contracts in Central and Northern Scotland and it is intended that this new facility will facilitate improved recycling rates for both domestic and commercial waste in the region.

“This is an excellent result, we’re really pleased to see the project progress; it will keep the business at the forefront of a dynamic waste management industry in the UK.”

Andrew StubbsAssociate DirectorGrant Thornton

“We are delighted to support our long standing customer with a package which will drive the next phase of its growth. The move highlights our support for the business’ investment in environmental innovation, and our confi dence in the management team’s ability to deliver.”

Steve SherrattSenior Corporate Banking ManagerHSBC NorthWes

Avondale Environmental Limited

Fund raisingDevelopment of a waste recycling facility

£17m May 2011

Grant Thornton provided corporate fi nance advisory services

“We’ve nurtured our plans over a number of years, including taking the scheme through planning, so we’re obviously delighted to have reached this signifi cant milestone.”

Derek CooperDirectorAvondale Environmental

Section 5:How we can help


About Grant ThorntonGrant Thornton UK LLP is one of the largest accountancy and advisory fi rms in the UK. A leading fi nancial and business adviser, we have over 200 partners and 4,000 staff based in 28 locations nationwide.Recognising the importance of a sector focus, we operate through sector teams, providing industry-specifi c, reliable and candid solutions to the challenges facing today’s businesses. Each partner-led team is staffed by sector specialists who have immense experience and know-how in their chosen fi eld. This approach gives our clients a high quality service based on sound market understanding.We offer a range of services to waste and environmental businesses, such as mergers and acquisitions advice, as well as fund raising, and have been successful in raising funds despite the diffi cult banking environment. In addition, we can provide specialised advice in a variety of areas including;

• Contract tendering• Project fi nance advice• Project appraisal• Transactional tax advice• Money saving ideas in relation to environmental tax incentives• Valuations• Feasibility studies• Policy implementation• Corporate structuring advice• Internal audit reviews of environmental activities

How we can help

Contact detailsIf you would like further information regarding Grant Thornton, please contact one of the following members of the waste and recycling group:

NorthAli Sharifi – PartnerManchesterT +44 (0)161 953 6350E ali.sharifi @uk.gt.com

Mark Burke – PartnerLeedsT +44 (0)113 200 1527E [email protected]

South WestNigel Mattravers –DirectorBristolT +44 (0)117 305 7699E [email protected]

Mark Naughton – DirectorBristolT +44 (0)117 305 7712E [email protected]

ScotlandNathan Goode – PartnerEdinburghT +44 (0)131 659 8513E [email protected]

EastTim Blois – DirectorMilton KeynesT +44 (0)1908 359 582E [email protected]

South EastPeter Dawson – PartnerLondonT +44 (0)20 7728 3197E [email protected]

Northern IrelandCharlie Kerlin – DirectorBelfastT +44 (0)28 9031 6510E [email protected]

Appendix A:Deals listing


Waste and recycling

Date completed Target name Target business description Acquiror name

Deal value £000’s GBP

11/01/2011 Britcare Ltd Waste disposal services Tradebe Ltd n.a.

14/01/2011 Swinnerton Environmental Ltd Waste management services Viridor Ltd n.a.

27/01/2011 Redeem Ltd Printer cartridge and mobile phone recovery services

MBi Team - United Kingdom n.a.

31/01/2011 international Recycling Ltd Waste processing and trading services Ciparo BV n.a.

03/02/2011 Northumberland Waste Services Ltd

Waste management services The Durham Company Ltd n.a.

07/02/2011 Martock Waste Paper Ltd Paper recovery and recycling services provider Viridor Waste Management Ltd 7,400

09/02/2011 Singh (UK) Ltd Waste processing services Valens Resources Group Plc n.a.

17/02/2011 CK Polymers Ltd Plastic recycling services Private Group led by management of CK Polymers Ltd

n.a.

21/02/2011 OKLM Recycling Technology Ltd

Waste processing services Sutco Recyclingtechnik GmbH & Co

n.a.

04/03/2011 Shred Easy Ltd Confidential data destruction and recycling services

PHS Datashred n.a.

14/03/2011 Hewitt international Ltd Vehicle salvage disposal services Copart UK Ltd n.a.

16/03/2011 Wales Environmental Ltd Liquid waste management services MBO Team n.a.

25/03/2011 Shredsecure Ltd Confidential paper and document shredding services

PHS Datashred n.a.

04/04/2011 Premier Waste Management Ltd’s Commercial And industrial Waste Business

Waste management services HW Martin n.a.

21/04/2011 Stobart Biomass Products Ltd Biomass fuel distribution services Stobart Group Ltd 20,000.00

26/04/2011 Halstead Renewable Power Developer of AD power Countrystyle Recycling n.a.

05/05/2011 Reynolds Boughton Ltd Waste handling and military vehicles manufacturer Skan Group Holdings Ltd n.a.

09/05/2011 Dunn Brothers (1995) Ltd Metal recycling services Sims Group UK Ltd n.a.

11/05/2011 Recycle-Direct.Com Ltd Recycling waste services Green Recycling Ltd n.a.

17/05/2011 North East Recycling Ltd’s assets

Recycling services Newport Paper Company Ltd n.a.

01/06/2011 Smash And Grab Bottle crushing machinery SWR Waste Management n.a.

01/06/2011 Ml Oils Ltd Waste oil procurement and handling services Verta Energy Trading Ltd n.a.

07/06/2011 Storm Recycling Ltd Cardboard and plastics recycling services Viridor Waste Management Ltd 1,700

14/06/2011 Recycled Glass Products Ltd Household products from recycled glass manufacturer

Collingham Ventures Ltd n.a.

23/06/2011 Oakwood Fuels Ltd Waste oil and hazardous waste collection services

DCC Environmental Britain Ltd n.a.




04/07/2011 Environmental Mobile Control Ltd

Business data removal services,Business recycling services

Redeem Holdings Ltd n.a.

06/07/2011 Cutts Recycling Ltd Paper collection, processing and recycling services

Sociedad Anónima industrias Celulosa Aragonesa SA

n.a.

07/07/2011 Countryside Skip Hire Skip hire services GD Environmental Ltd 5,000.00*

20/07/2011 Ruskinn Technology Ltd Anaerobic and modified-atmosphere workstations manufacturer

The Baker Company inc. n.a.

05/08/2011 Waste Watch Recycling litter charity trust services Keep Britain Tidy n.a.

08/08/2011Valpak Ltd Environmental compliance, consultancy, recycling

schemes servicesValpak 2011 Ltd n.a.

05/09/2011 Solvent Resource Management Ltd

Organic waste disposal services Tradebe SA n.a.

06/09/2011 Stirling Fibre Ltd Recycling services Sociedad Anónima industrias Celulosa Aragonesa SA

n.a.

14/09/2011 Prosper De Mulder Ltd Food chain by-product recycling services Saria Bio-industries Ag & Co Kg n.a.

15/09/2011 Coleraine Skip Hire And Recycling Ltd

Skip hire services investors 5,000.00

21/09/2011 Recycled Carbon Fibre Ltd Carbon fibre recycling services ELG Haniel GmbH n.a.

29/09/2011 Recycle Wales Ltd Waste management compliance schemes operator

The Wastepack Group Ltd n.a.

30/09/2011 S3 interactive Ltd Mobile phone recycling services Sims Metal Management Ltd n.a.

30/09/2011 S3 interactive Ltd Mobile phone recycling services Sims Metal Management Ltd n.a.

06/10/2011 Byproduct Recovery Ltd Recycling services 4R (Group) Ltd n.a.

10/10/2011 Thoroughshred Ltd Shredding and confidential waste collection services

Restore Shred Ltd 375.00

20/10/2011 Hall and Campey Environmental Services Ltd

Garage waste handling and disposal services OSS Group Ltd n.a.

18/11/2011 JWS Churngold Ltd Waste logistics and transport services Viridor Waste Management Ltd 14,250.00

27/11/2011 iT Asset Disposal Ltd Electrical and electronic equipment waste management services

Footprintmatters2u Ltd n.a.

30/11/2011 Chris Davey Car Parts Ltd Car parts wholesaler, Scrap car recycling centre operator

South West Metals and Waste Recycling Ltd

500.00*

30/11/2011 Community Waste Holding Ltd Recycling services Viridor Waste Management Ltd 15,750.00

08/12/2011 Acu-Pak Ltd Waste management compliance schemes operator


08/12/2011 Nilwaste Ltd Waste management compliance schemes operator



Environmental services, energy efficiency and pollution control



04/01/2011 Utility Masters Ltd Energy consultancy and outsourcing services M&C Energy Group Ltd n.a.

07/01/2011 Carbon Resource Management Ltd

Carbon assets development and monetisation consultancy services

Vitol Group n.a.

11/01/2011 Remote Energy Monitoring Ltd Energy metering services General Electric Company n.a.

02/02/2011 Cogent Environmental Ltd

Environmental and process monitoring solutions provider

Modern Water Plc 815

03/02/2011 Eaga Plc Energy trust operator, Services, products and solutions that address the social, environmental and energy efficiency objectives of Government and the private sector

Carillion Plc 306,500.00*

08/02/2011 Elektromotive Ltd Electric vehicle recharging station technology design and installation services

The Lexicon Group Ltd 7,456.69*

14/02/2011 Santia Group’s Services Division

Fire Safety and Prevention services, Fumigation and Pest Control services, Water Treatment and Hygiene services

Rentokil initial Plc 8,600

02/02/2011 Clyde Process Solutions Plc Energy efficient solutions designer, Investment services company focused on the waste management and materials handling sectors, Pneumatic conveying systems developer

S-Process Equipment international SARL

33,311.00*

28/02/2011 Clyde Process Solutions Ltd Energy efficient solutions designer, Pneumatic conveying systems developer

Schenck Process Holding GmbH

n.a.

02/03/2011 Smartcool Systems UK Ltd Energy conservation and cost reduction technology distributor

Smartcool Systems (EMEA) Ltd

n.a.




07/04/2011 Power Efficiency Ltd Energy advisory services, Energy management consultancy services

Balfour Beatty Workplace Limited

18,000.00*

02/05/2011 James ingram & Associates Energy alternative consulting and engineering services

Xodus Group Ltd n.a.

13/05/2011 CCS Tlm Ltd Carbon capture and storage (CCS) services Tractebel Engineering n.a.

04/07/2011 Right House Ltd Heating and insulation installation services, Home energy saving evaluation services

Mark Group Ltd n.a.

07/07/2011 Smart Energy Systems Ltd Energy output reduction services Adam Communication Systems international Ltd

n.a.

22/07/2011 Vickers Electronics Ltd Energy management system design installation and maintenance services

MBO Team 7,200.00

29/07/2011 Ecotech ZCBS Ltd Energy efficient homes construction services Climate Energy Ltd n.a.

22/08/2011 Cyclo Systems international Ltd

Energy management consultancy services, Energy management software developer

Gazprom Global Energy Solutions Ltd

n.a.

26/09/2011 Wattbox Ltd intelligent heating and hot water controls manufacturer

Alertme.Com Ltd n.a.

14/11/2011 inspired Group Holdings Ltd Energy supply management services Finemore Energy Ltd n.a.

06/12/2011 DRLSoftware Ltd Environmental measurement and monitoring software developer, Environmental measurement and monitoring software wholesaler

HR Wallingford Group Ltd n.a.

© 2012 Grant Thornton UK LLP. All rights reserved.

‘Grant Thornton’ means Grant Thornton UK LLP, a limited liability partnership.

Grant Thornton is a member firm of Grant Thornton International Ltd (Grant Thornton International). References to ‘Grant Thornton’ are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms, which are not responsible for the services or activities of one another. Grant Thornton International does not provide services to clients.

This publication has been prepared only as a guide.No responsibility can be accepted by us for loss occasionedto any person acting or refraining from acting as a result ofany material in this publication.

grant-thornton.co.uk

V21414