Larger waste management companies are better positioned to provide a full service offering. They are more efficient at processing waste and have greater (and more price certain) access to effective treatment capacity. Large integrated trade players are likely to continue to focus on strategic acquisitions of smaller, regional companies, such as Biffa’s acquisition of Cory Environmental’s waste collection business in June 2016 and the regional collection and processing business, Blakeley’s in September 2016.
The wider European market shows evidence of growing Chinese and other overseas investor interest in the sector, such as China’s Firion Investments’ acquisition of Spain’s Urbaser SA and Beijing Enterprise Holdings’ acquisition of Germany-based EEW. We expect this interest to flow through to the UK market as UK treatment infrastructure assets mature and transaction volumes increase.
Smaller and mid-market waste companies without critical mass, or a particularly strong regional position are expected to face a difficult environment. Companies operating a business model of collection services, basic pre-treatment and export out of the UK are more likely to suffer in the current trading environment, in light of strong competition for customers, escalating RDF export costs and continuing low recyclate values.
Landfill decline is terminal
Landfill Tax continues to increase with RPI and tonnage continues to be lost to new domestic treatment capacity and the export market. Accelerating closure dates will in turn accelerate capital expenditure spend for landfill operators as capping and remediation work begins following site closure. Whilst landfill owners with strategic locations may be better positioned in the near-term, in the long-term, the outlook for landfill has not changed. We expect an increasing number of waste businesses to seek to exit landfill as “landfill consolidators” emerge.
While the pipeline of local authority PFI contracts has slowed to a trickle, both large waste companies and smaller developers believe additional capacity is required and continue to develop new facilities on a “merchant” basis. Some of these projects use less proven, gasification-based technologies. Given the number of recent high-profile and costly project failures, careful consideration needs to be given to technology risks when evaluating new infrastructure developments.