The waste and environmental sector update provides information on mergers and acquisitions (M&A) activity and trends in the energy from waste (EfW) sector for the first half of 2012. M&A activity saw a significant decline compared to 2011, with deal volumes down a third and fewer overseas acquisitions. Within recycling, deals focused on plastics recycling. The EfW sector continues to see growth potential but project financing remains challenging due to high capital costs and legislative uncertainty around incentives.

1. SECTOR UPDATE SUMMER 2012
Waste and environmental
sector update
This summer 2012 update includes:
A review of mergers and acquisitions activity in the waste
and environmental sector for the first half of 2012
Our thoughts on the Energy from Waste (EfW) sector
If you would like to discuss the content
of this update, or any other sector
issues, please contact:
Emma Grice
T +44 (0)161 953 6315
E emma.grice@uk.gt.com

2. M&A update
H1 2012
Significant fall in M&A activity: M&A volumes
From record highs in 2011 to record lows in 2012 • Deal volumes for Q1 & Q2 have
declined by a third on the precedent
number in the first half of 2011
and are consistently lower than the
Fig 1: Deal volumes by quarter 2008 - Q2 2012
activity within the sector for Q1 &
Q2 over the previous four years
19 • This downturn in activity is infuenced
by the drop off in acquisitions made
by overseas parties; only 2 of 16
acquisitions in the first half of 2012, a
14 14
significant decline from 7 of 25 in the
13
corresponding period in 2011
11 11 11
10
9 9 9
• Deal quality can also be said to be
9
8 on the decline, with 1/4 of 2012
7 transactions involving an element
6 6
of distress
4
3
• Companies who were acquired
directly out of administration include;
Harpers Environmental Services Ltd,
2008 (39 deals) 2009 (33 deals) 2010 (37 deals) 2011 (48 deals) 2012 (12 deals)
Plastic Sorting Limited and Chilton
Waste Services Limited
• In addition, there was the purchase
Q1 Q2 Q3 Q4
of Fountains Environmental Limited
(formerly Connaught Environmental
Limited) who continued to trade
normally but were disposed of by
Source: Zephyr
Please note that for comparison purposes, the deal volume charts above are for waste deals only. their parent company, Connaught
PLC who themselves had previously
entered administration at the end
of 2010
• The debt markets also remain
difficult, highlighted by the lack of
MBO activity, with no MBO’s being
completed in the first half of the year

3. Fig 2: Number of deals by sub-sector Fig 3: Number of deals by sub-sector
Q1-Q2 2012 Q1-Q4 2011
Sector trends
• Our sector review continues to
highlight the growing importance of Recycling 36% Recycling 50%
the consultancy space. This sub- Consultancy 25% Energy efficiency 18%
sector now represents a 1/4 of total Hazardous and industrial waste 4% Consultancy 10%
deals YTD Waste management 16% Hazardous and industrial waste 7%
Energy from waste 8% Waste management 4%
• The growing significance of this Other environmental services 4% Waste equipment 4%
sub-sector indicates that businesses Compliance and technical 4% Medical waste 2%
continue to buy in these capabilities, Energy from waste 2%
despite other sub-sectors suffering a Other environmental services 2%
downturn in activity Compliance and technical 2%
• Within recycling, the market can be
further split by types of materials
recycled (see Fig 4 and 5). This
indicates a continuing shift towards
the plastics sub-sector. The two deals Fig 4: Number of recycling deals by Fig 5: Number of recycling deals by
transpiring in the first 6 months of sub-sector Q1-Q2 2012 sub-sector Q1-Q4 2011
2012 were Regain Polymers Limited
acquiring Express Recyling & Plastic
Limited as well as Viridis Plastics
Limited purchasing Plastic Sorting
Limited, out of administration
• We also saw the first deal in the
textiles sub-sector since 2010, with
the Salvation Army’s acquisition of
Kettering Textiles Limited
General 22% General 26%
Paper 22% Paper 23%
Organic 11% Organic 16%
WEEE 11% Metal 13%
Plastic 22% WEEE 16%
Textile 11% Plastic 3%
Glass 3%

4. Energy from Waste (EfW)
Sector update
At Grant Thornton, we are increasingly being asked to comment on this growing sub-sector.
A selection of the key themes derived from our discussions have been provided below:
Financing viability of EfW schemes Growth prospects for the sector Pros and cons of the sector
• Substantial start-up capital is typically • The UK Government’s Bioenergy Pros
required and this can be challenging Strategy gives a clear signal on the • Positive change in attitude towards
to obtain, particularly where there role for bioenergy in heat, transport the sector combined with a regulatory
is no credit history to support the and electricity, which together could environment which generally looks to
funding application contribute around half of the overall support growth
• They generally require bespoke 2020 Renewable energy target • Relatively fragmented market, albeit
project finance rather than standard • There is however continuing Biffa, SITA, Veolia, Viridor and WRC
corporate loans but without other legislative uncertainty due to the equate for around 50% of the market
assets to secure the debt against or recent review of ROCs, FITs and • The opportunity for investment into
substantial long-term feedstock now a further review of RHIs the sector should continue to grow
guarantees, obtaining any funding at • Technology is continuing to improve
all can be extremely difficult in the sector and not only within Cons
• This therefore leads to the incineration. We are for example • Financing difficulties for start-up
requirement for equity funding seeing a lot of interest in anaerobic operations
which is very expensive and hard to digestion facilities which in turn • Continuous “moving of the goal
come by. This often leaves projects in is leading to significant efficiency posts” from the various governmental
“limbo” where the cost of third party improvements for operators to directives and incentives
equity, makes the project unviable. benefit from • Gaining planning permission for sites
Financial investors have yet to get • There has also been an emergence in the right locations
comfortable (mainly due to lack of of the gasification sub-sector, most
successful precedents), that many notably the recent announcement
business plans are actually low risk by Air Products, confirming their
and deserve a lower cost of capital intention to build the World’s largest Useful EfW websites
advanced gasification facility in Environmental Services Association
Investors in the sector Teeside http://www.esauk.org/energy_
recovery/
• Predominantly we have seen large • The demand for energy security also
corporates looking to diversify into continues to be a significant driver Renewable Energy Association
http://www.r-e-a.net/renewable-
green technologies that are closely for this sub-sector, with a variety of technologies/energy-from-waste
associated with their core businesses feedstocks now being utilised by the
Confederation of European Waste-to-
and at the other end of the scale, various technologies Energy Plants
small start-ups backed by private • From an M&A perspective, we http://www.eswet.eu
investors who are willing to take forecast that the leaning towards WRAP
technology risk niche/specialist companies will http://www.wrap.org.uk/category/
subject/energy-waste?page=1
• The Green Investment Bank (GIB) continue going forward with the
has confirmed EfW is one of their subcategories of energy from Environment Agency
http://www.environment-agency.
chosen investment sectors but the waste and organic waste recycling gov.uk/research/library/
true potential for this funding is yet accounting for the greatest number of position/103220.aspx
to be determined transactions, in addition to significant DECC
• The banks and financial investors opportunities in energy efficiency http://www.decc.gov.uk/en/content/
(such as private equity) remain very cms/meeting_energy/bioenergy/
waste/waste.aspx
cautious on the sector
© 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.
grant-thornton.co.uk V22090