On a global scale, only approx. 25% of all waste is recycled as emerging countries continue to dispose of over half of their waste in landfills offering enormous potential for additional recycling activities. A growing consumer demand for electronic products has put authorities under pressure, as the natural resources used in production are dwindling.
In Europe, the waste and recycling market has been characterised by a rising regulatory burden which, combined with economies of scale and high capital intensity, is presenting high barriers to entry. By aiming to optimise recycling efficiency, authorities intend to reduce waste volumes through waste avoidance, leading to upward pressure on prices. Market players, in turn, are trying to overcome the pressure through vertical integration in order to diversify their service portfolio and develop themselves as full-service providers.
Service portfolio enhancement and technological leadership, particularly in sorting and waste-to-energy, have become of vital importance for companies, as innovative technologies can offer significant margin upside potential. Small players are rarely prepared to finance the relevant investments to stay competitive, creating consolidation opportunities. At the same time, the high number of private equity funds looking to realise their investments presents an opportunity to further consolidate the market. A prime example is H.I.G. Capital-backed Duales System Deutschland (DSD), which has attracted bids from trade buyers such as Remondis through its sale process. Furthermore, Asian players have increasingly turned their attention to Europe, planning to implement new technology into a currently under-developed domestic market. Recent significant market entries from Chinese buyers into Europe include the acquisition of Spanish waste manager Urbaser by China Tianying as well as the acquisition of ALBA’s recycling and services segment by Chengdu Techcent Environment.
Acquisition strategies from large European firms are driven by regulatory pressure from the EU, which focuses on waste avoidance and preservation of resources by increasing recycling efficiency. As a result, players focus on strengthening their footprint in alternative recycling methods, digitalisation and diversification of services to overcome the limitation in earnings potential from reduction in waste volumes. Suez has already taken an important step towards digitalisation by investing $50m (€47.2m) in Rubicon Global, a cloud-based waste and recycling solutions company, while Veolia has recently strengthened its activities in energy production from waste by acquiring several biomass energy plants in Germany. In line with a strategy to diversify services and geographic presence, Clearwater International has recently advised the German waste recycling company Landbell AG on its acquisition of the UK-based recycling unit of DHL Supply Chain as well as Ireland-based H2 Compliance and France-based European Recycling Platform.
In the medium to long-term, increasing internationalisation across European borders will allow technology leaders to widen their presence and introduce services to new markets. Moreover, the shift to recycling, led by legislation as natural resources become increasingly scarce, will translate into new players, such as producers of electronics particularly from the Far East, entering the waste and recycling market in order to access the post-consumer market for materials.