There's gold in waste management

By Quentin Webb Reuters
Published: January 8, 2009

LONDON: The planned sale of a big Dutch waste-management company will test how much appetite remains for the unglamorous but dependable sector, which enjoyed its own miniboom during the credit bubble.
Essent Waste, a unit of the Dutch utility Essent, is likely to draw interest from private equity firms, infrastructure funds and bigger rivals, bankers and analysts said.
But tough debt markets and a fall-off in energy and commodity prices are likely to limit the sale value.
"Essent Waste could be a bit of a barometer for the whole infrastructure market - to see where funding's moved to after the turmoil of last autumn, where multiples have fallen to, and who's interested," said Mark Wilson, a partner at Catalyst Corporate Finance, a British merger adviser.
The sale could interest all of the big players in British waste management, Wilson said, including Shanks, Veolia Environnement, Suez Environnement and Biffa, which was bought last year by a consortium led by Montagu Private Equity and Global Infrastructure Partners.

Although the process of selling Essent Waste has not formally begun, prospective bidders received detailed due diligence before Christmas.
Essent Waste could bring more than €1 billion, or $1.36 billion, or more than 6.7 times its earnings before interest, tax, depreciation and amortization.
The utility, which is also separately selling its commercial production and delivery business, declined to comment.
Essent Waste processes about 3 million tons of waste a year, burning some for electricity, composting other waste and managing landfills.
Waste management's appeal lies in the fact that unlike water and power companies, regulators generally do not cap the returns made by the businesses that collect, bury, burn or recycle European rubbish.
And although they are not immune to a weakening economy - since commercial waste volumes tend to drop in tough times - waste companies also benefit from tougher environmental laws, said Richard Rae, an analyst at RBS.
"Waste is becoming more and more valuable because of the regulation that surrounds it, forcing more and more waste to be recycled," he said.
When debt was cheap, all this helped companies sell for "absolutely huge" prices, Rae said, often 10 to 12 times earnings before interest, tax, depreciation and amortization, or Ebitda.
In 2007, there were 132 deals in Europe's wider water and waste management sector, for a total of more than $33 billion, according to Thomson Reuters data.
But Rae said a multiple of six to eight times Ebitda "sounds quite plausible in today's credit-constrained market." That implies a value for Essent Waste of about €900 million to €1.2 billion.
Wilson at Catalyst said some deals in Britain were being struck at just four times Ebitda, with companies hit by a drop in the value of the materials they recycle.
Despite this, and tougher debt markets, private equity funds are still likely to take an interest, bankers and analysts say.
In particular, CVC and Kohlberg Kravis Roberts are big players in the sector, having together already bought and combined two big Dutch waste-management companies, AVR and Van Gansewinkel.
KKR declined to comment, while a spokeswoman for CVC was not immediately available to comment.
Still others have been able to realize profitable exits over the last couple of years - including Terra Firma, which sold the waste disposal division of Waste Recycling Group, a British company, to the Spanish company FCC for an enterprise value of £1.4 billion, or $2.09 billion, in 2006.
Credit Suisse and ING are advising Essent on the sale.