Historically a highly fragmented industry, the waste management and recycling sector has undergone a process of consolidation and increased M&A activity over the past several years. Analysts have offered various explanations for this trend, ranging from a desire for larger companies to expand their geographic coverage to a rise in clean-tech and recycling businesses.

Although typically not an industry that attracts the limelight, investors now view waste management and recycling companies as attractive targets due to the high barriers to entry and the presumed lower risk that comes with businesses providing essential services.[1] As a result of these and other factors (such as favourable borrowing conditions), M&A activity in the waste management and recycling industry has been robust the past several years.

According to a recent report, M&A activity set a record high in 2017 in the British waste management and recycling sector. Much like that of the United States, the sector has positioned itself for continuous consolidation. The report provides several reasons for the increased number of transactions, from the emerging technological prospects of creating fuel from waste products (akin to the “Mr. Fusion” powered DeLorean from Back to the Future II) to the impact of China’s “Operation Green Fence.” The “Green Fence” directive, implemented in late 2013, was aimed at stemming the tide of waste products exported to China from other jurisdictions, which totaled a staggering percentage of global plastic waste in the last decade. In 2017, China announced a complete ban on future plastic waste imports. For the UK, the potential loss of China as a market may have led companies to insure against risk by making acquisitions to bolster their domestic waste processing operations.

The report also highlights a marked increase in deals involving recycling companies, rising by 50% relative to 2016. This may be partly due to the recovery of global oil prices, but the economic stake of recycling companies has also been growing in line with a renewed focus by governments on the “circular economy”, which imagines resources being used for as long as possible. Initiatives such as Norway’s plastic bottle deposit system and Vancouver’s proposed requirement for all single-use cups and containers to be made of recyclable materials are examples of policies which may result in continued consolidation M&A in the recycling industry as companies seek to take advantage of new opportunities.

Canadian waste management and recycling companies have undergone some degree of consolidation, though not on the same scale as in the UK and US. However, with thousands of independent businesses in the Canada’s waste management and recycling industry and Canada’s position as one of the world’s biggest per capita generators of waste, the Canadian industry may soon follow the M&A trends set by its neighbours to the south.

[1] See: Grant Thornton UK LLP, “Annual Waste and Resource Management Review” (May 2018) at: https://www.williamblair.com/News-Items/2017/June/23/Waste-Expo-2017.aspx

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