This is one of the key findings from a study by LRS Consultancy and Catalyst Corporate Finance that predicts the sector will invest almost £7bn in new waste treatment facilities during this timeframe as it becomes a key enabler for the circular economy.

This changing landscape is also attracting new entrants and is set to boost merger and acquisition (M&A) activity in the medium term.

Corporate investors such as Coca Cola Enterprises are forging strategic alliances with key players in the waste industry to recover greater value from their material streams, while the Green Investment Bank is targeting £15bn of private investment into low-carbon projects, some of which has already been committed to waste-related ventures.

The UK is also becoming a key target market for overseas investors. According to the study, a quarter of transactions by trade buyers during 2012 involved a foreign buyer. These companies are attracted to the pace of change in the market as well as the opportunity to secure access to raw materials.

Interestingly, the market is becoming more adaptable and evolving into one with shorter-term local authority contracts and agreements based on specific waste streams across the municipal and commercial sectors.

While securing waste contracts continues to be at the core of most operations, there are fewer PFI deals to be won and competition for local authority contracts remains intense. Issues around feedstock security are likely to heighten in the future as a result.

That said, there is still plenty of opportunity to capture material as landfill diversion strategies take hold.

Many of the major players are committing significant investment capital to new infrastructure – the top five (Veolia, SITA, Biffa, Viridor and FCC Environment) accounted for over half (52%) of the £3.8bn spent over the past five years.

The top spender was Veolia with a 17% expenditure level. According to the company’s CEO Estelle Brachlianoff, the UK remains a prime investment vehicle.

“We have committed to £1bn of investment in the next six years. So we will be investing the same kind of money we have already,” she has been quoted as saying.

The study points to energy-from-waste facilities as being the main beneficiary of future investment across the sector. Expenditure in this area alone is expected to reach around £1bn in 2013 rising to £1.8bn in 2015.

However, this trend could pan out by 2018 as capacity levels reach saturation point. This could then trigger a new wave of consolidation and M&A activity as those plants without sufficient residual waste treatment capacity are left at a disadvantage.

Maxine Perella

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