It is no secret that waste management’s big players are currently focusing on consolidation. However, there are rafts of smaller businesses challenging their dominance, businesses that are ambitious to scale up and grow. BGF has backed six businesses in the sector – all of them are in the ascendancy, expanding their sites across the UK.
These businesses do not have it easy, however. The sector faces numerous challenges thanks to a rapidly changing political and economic climate. The success of waste management companies has long been linked to regulatory decisions, with EU directives driving considerable growth in recycling volumes. Yet Brexit and the recent General Election have undoubtedly created regulatory uncertainty, even if there is a policymaking consensus in favour of maintaining EU waste targets after Brexit.
That said, regulation can increase costs as well as demand. A growing body of compliance legislation has caused businesses to absorb higher operational costs as they increase capital expenditure in order to meet requirements. This is compounded by a growing trend towards renting equipment – as opposed to purchasing it – which is adding further pressure to working capital.
Funding
Finding the right funding to scale-up can be challenging in this environment. Balancing the risk of an uncertain political climate against the need for significant levels of capital expenditure is essential.
BGF’s investments have helped to strengthen balance sheets and unlock additional debt facilities. In October 2016, we invested £5m in Derby-based Johnsons Aggregates & Recycling which supported a trebling in recycling capacity. As well as our investment, Johnsons secured an additional £5m debt facility providing additional working capital at the same time. We have seen similar stories across our other investments including Wales Environmental and RiverRidge Recycling.
Equity finance has numerous advantages but, in my experience, most entrepreneurs in want to retain control of their businesses. BGF is a minority investor, which means we don’t take control and we don’t get involved in the day-to-day running of companies. We make investments based on the strength of business’s leaders, and their aspirations for the future. We also help them gain invaluable expertise by introducing them to individuals with leading sector knowledge and experience. For example, Jim Meredith, chairman of leading specialist hazardous waste management businesses Augean Plc and former chief executive of Waste Recycling Group, co-invested alongside BGF in RiverRidge Recycling and was appointed by the business as chairman.
It’s clear that operating models are changing and an uncertain future means that the scale and pace of this change will only increase. But smaller businesses in the sector remain ambitious and I am confident that new and exciting opportunities will continue to emerge, perhaps even because of the uncertainty. With the right kind of funding and support, the future remains bright for waste management’s entrepreneurs.
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