Circular Economy Series

What is the Circular Economy

A circular economy business model moves away from traditional linear business models, where raw materials are used to produce products that have a finite lifetime, before being disposed of without consideration for environmental impacts. In a circular economy, materials, products and energy are reused, repaired, recycled, shared and composted to return natural resources to the earth, and prolong the lifetimes of technological resources.

'A circular economy decouples economic activity from the consumption of finite resources. It is a resilient system that is good for business, people and the environment. The circular economy is a systems solution framework that tackles global challenges like climate change, biodiversity loss, waste, and pollution.'


When thinking about the Circular Economy, the first consideration for most people, quite rightly, is the environment. It’s about a new way of thinking, transitioning away from traditional linear models that use finite resources to produce goods and services, towards regeneration and reuse. In recent years this has been accompanied by a growing acknowledgement that these Circular Economy principles also encourage economic innovation and growth. According to the World Economic Forum, the Circular Economy could yield up to $4.5 trillion in economic benefits globally by 2030.

What are the benefits of a circular economy?

A move to a circular economy would hold many benefits for the environment, and the climate crisis. It aims to eliminate waste, with biological materials being reused until they can be composted or used as fuel, and prolonging the lifecycle of finite materials like metals by focusing on reusing, refurbishing and replacing parts. In turn, by aiming to return natural resources to the earth, it aims to regenerate nature, with the economy operating on a principle of reusing resources many times over. This reduces the reliance on finite resources and allows the economy to actively regenerate the natural environment.

Circular Economy investment snapshot – 2023

Despite a challenging M&A environment, the Circular Economy continued to thrive in 2023. Much talked about headwinds were responsible for a 15-20% decrease in UK private equity transactions compared to 2022, which makes the continued growth of Circular Economy related investment all the more impressive.

The number of UK CE deals increased 30% compared to 2022, the fifth year in a row of deal volume growth and the second largest year-on-year percentage growth since we commenced our data set. 

In 2023, investors deployed capital in excess of £1.3bn, a 50% annual increase, across 184 investments. In this years report we consider:

  • Who is investing in Circular Economy businesses in the UK?
  • The attitudes of UK Manufacturing SMEs towards the Circular Economy, and how they are evolving
  • The key considerations for Circular Economy entrepreneurs looking to raise growth funding
  • Which sectors are most influenced by circular trends?

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The transition to a circular economy is creating a unique opportunity for entrepreneurs and investors to collaborate. For entrepreneurs, it provides the opportunity to completely re-think practices and processes in the design of new products, services and business models.

For private equity investors, ESG and Sustainability considerations are moving with ever increasing pace towards the top of investment agendas. 88% of limited partners now consider ESG impact when making investment decisions.

Historically, an investor’s ESG agenda was centred around managing risk and compliance, but over the past five years things have changed with a clear shift in investor attitudes towards proactive ESG and the Circular Economy. There is now industry wide recognition of the long-term value creation opportunities that circular business models and positive sustainability characteristics provide.

At the very heart of its ethos, the Circular Economy is about reducing waste and driving resource efficiencies. Using and re-using naturally sustainable raw materials is inevitably cheaper than having to source new raw materials for every product, but efficiencies aren’t just limited to the supply side. One of the major economic benefits of the Circular Economy is that it promotes business models that extend the value generating potential of a product. How can items be maintained or refurbished to ensure they last longer? Can products traditionally owned by a single consumer be rented or sold multiple times for a combined value that exceeds a one-off sale? The Circular Economy is about using less to deliver more; a simple concept, but one that is an obvious attraction for investors.

In the UK in 2022 there were 142 investments totalling over £1bn made into circular businesses. Whilst it is pleasing to see increasing momentum behind the Circular Economy, the investment landscape is not without challenges. For every successful deal there are multiple other early-stage Circular Economy businesses that have been unable to raise the investment they require. But why is this?

However by its very nature, the Circular Economy is disruptive, meaning more often than not the companies operating within the space are presenting entirely different business models or processes to private equity investors.

By its very nature, the Circular Economy is disruptive, meaning more often than not the companies operating within the space are presenting entirely different business models or processes to private equity investors.

Circular Economy entrepreneurs are much sought after, but they must be able to demonstrate and articulate two things:

  • A clear commercial growth plan including identifying and quantifying the addressable target market
  • Why consumers or businesses will transition to their product, service or solution over either legacy linear or new competing circular alternatives

This can be challenging when they are often, and commendably so, purpose driven, with economic reward sitting either behind or alongside environmental impact in terms of personal priorities. It can also be extremely difficult for an entrepreneur to have the discipline to leave behind an outstanding idea that simply doesn’t have the addressable market to excite investors.

At the same time, investors must recognise that Circular Economy entrepreneurs are often focused on profit and sustainability in equal measure, and that to motivate these business owners they must both be recognised as priorities. To stand out from the crowd, investors need to demonstrate they understand the how and the why.

When you consider the Circular Economy value proposition it is perhaps unsurprising that it continues to out-pace the general UK M&A market. The positive environmental impact of the Circular Economy is well documented. Approximately 45% of global emissions come from industry, agriculture and land-use and it is across these pillars that a circular approach to re-using materials and reducing waste can be most impactful. By transitioning to circular models, we have the opportunity to reduce single use material by 30%. In turn, Circular economy strategies could help reduce global GHG emissions by 40 percent by 2050.

But why is this of interest to a private equity investor? Financial rewards and positive environmental impact are intrinsically linked, and the benefits of investing in the circular economy are clear and compelling. 

Increasing pressure from investors

Venture Capital, mid-market Private Equity and debt funds are increasingly under pressure from their institutional investors to highlight the positive environmental, social, and sustainable impact generated by their portfolios.

Reputational damage from being associated with assets that either fail or hit the headlines due to negative ESG matters is a risk that institutional investors cannot afford to take.

With the Circular Economy increasingly recognised as essential part of the solution in delivering on climate change and ESG issues, its importance continues to be impressed upon those institutional investors entrusted to deploy capital on their behalf.

Using less to deliver more

The drive towards eliminating waste is a drive towards efficiency. 

Cutting out waste is cutting out cost. Using and re-using naturally sustainable raw materials is inevitably cheaper than having to source new raw materials for every product. It also provides greater assurance over both continuity and price volatility of raw materials.

Cost savings aren’t limited to raw materials. Innovation in smart logistics is drastically reducing the distance products and materials are travelling, yielding time and costs savings whilst drastically reducing carbon footprints.

On the demand side the Circular Economy is promotes revenue models that extend the value generating potential of an asset.The Circular Economy is about using less to deliver more, a simple concept, but one holding an obvious attraction for investors.

Rise in supportive government legislation

In June 2019 the UK Government became the first major economy to pass laws to end its contribution to global warming by achieving net zero carbon emissions by 2050. In July 2020 it introduced The Circular Economy Package, a legislative framework, identifying steps for reducing waste. The UK Government doesn’t just want the Circular Economy to succeed, it needs it to.

There is already a whole raft of legislation which supports and promotes businesses leading the way on Circular thinking.

Government policy is only heading one way on this. The incentives for sustainable, circular businesses, and the penalties for those who don’t act responsibly will continue to increase.

Aligning with consumer values on sustainability

Consumer attitude to sustainability is changing at a remarkable pace and societal demand for sustainable goods and services has never been higher, with the UK market valued at over £40bn.

Sustainability is not just something consumers are aware of, but is actively driving buying behaviours. 

Consumers no longer need to own products outright. Re-using as opposed to buying new is frequently preferred. Second hand is becoming cool.

Aligning with consumers’ values by partnering with Circular Economy businesses is an attractive proposition for investors, allowing them to share in sustainable growth trends.

Attracting the attention of trade buyers

Trade players are also on the lookout for circular economy investments. Fuelled by the combined desire to hit ambitious net zero targets and to get ahead of the competition in finding truly sustainable solutions for specific industry challenges

Whether it’s driven by reputational concerns, demonstrating to consumers and employees that they are doing the right thing, or being dictated to via government legislation, sustainability is no longer a tick box exercise.

Corporates are relying on innovative, agile and entrepreneurial businesses to help meet targets quicker and more efficiently than they would be able to internally. 

Being confident of a successful exit is a key consideration when making an investment and a swelling pool of trade acquirers is helping Circular Economy businesses become an increasingly compelling investment proposition.


Case studies


BDO M&A advised the shareholders of Green Home Group on the sale of a 50% stake in the business to Circularity Capital LLP

Green Home Group is an award winning energy efficiency company, installing insulation, boilers and other energy efficiency measures into homes across the UK.

Measures are delivered under the UK Government’s Energy Company Obligation scheme (“ECO”) on behalf of obligated energy providers, with ECO a key component of the UK Government’s strategy to tackle fuel poverty and reduce carbon emissions.

BDO Growth Advisory advised the shareholders of DAME in Seed Extension investment from a Family Office

DAME is a developer of organic, reusable period products. The business is on a mission to reduce single use products and plastics in the market, with additional environmental benefit achieved from use of organic cotton in supply chain.

BDO Transaction Services provided financial due diligence to Circularity Capital in relation to its investment in Bike Club.

It is estimated that 12.5m unused kids bikes go to waste across the UK. Bike Club’s subscription model allows bikes to be leased, refurbished and reused by new families.

BDO provided Vendor commercial due diligence on the carve out of Ross Care from Millbrook healthcare (Cairngorm Capital).

Ross Care’s carbon reduction plan includes the use of advanced route-planning software, and a first-time fix KPI for its wheelchair service engineers. This drives a significant reduction in fuel usage and emissions, by reducing repeat callouts to repair jobs.

Hometree is a residential energy services company on a mission to help millions of UK homeowners look after their homes and transition to low-carbon living. The Group offers renewable installations, finance, servicing and maintenance for home energy hardware.

How can we help?

As Circular Economy M&A advisors, it is our job to continue bridging the gap between investors and entrepreneurs by ensuring that business owners can turn Circular ideas or concepts into an investment ready opportunity.

If you’d like to discuss the Circular Economy with us or gain more of an understanding as to how we can help your business, please get in touch with one of our Circular Economy experts, Rory McPherson or Todd Mills.


Get in touch with our team