Speaking to MRW financial advisory firm Catalyst Corporate Finance research director Mark Wilson said the current economic climate will create more acquisition opportunities than during 2006/07 even though the economic conditions are tougher.
Wilson said: “We expect 2009 to be a good year to acquire businesses in the waste sector for a number of reasons. First the prices of businesses in 2006/07 were driven up by the overall expansion of credit – banks were lending substantially more on much easier terms and driving up valuations. Now that credit has all but vanished, we are seeing that the prices are returning to more normal levels. The same adjustment that has hit the housing sector is rebalancing the waste sector and the valuation expectations of business owners have dropped to much more reasonable levels now.”
Wilson went on to say that two years ago many companies were reluctant to acquire their competitors, for example, because vendor [the owners of businesses who are selling] price expectations were so high. He added: “The second reason is that with valuations becoming lower, many more businesses will be able to enter the acquisition market. In 2006/07 only operators with large balance sheets or an appetite to take on debt were able to participate. With more realistic value expectations we expect more buyers to look to acquire.
Wilson also said that Government sponsored investment through private finance initiative (PFI) credit schemes had never been higher. He said: “While the waste sector is strong with record PFI credit committed in 2008, next year will prove difficult for some businesses who have been over reliant on high commodity prices or have had their capital investment programmes interrupted by the contraction in the credit market. These businesses may seek buyers who can support them through more difficult times.”