Recycled aggregates M&A is positioning businesses for a sustainable future

Sustainability and the circular economy are gaining more prevalence across the economy, as businesses move from “talking” sustainability to “demonstrating” a sustainable vision and values.

The built environment is responsible for 40% of global emissions, and the building materials supply chain is one of the heaviest carbon emitting industries. In view of the necessity to achieve a 50% reduction in emissions by 2030 to avoid tipping points, it is no wonder that considerable investment is underway to progress sustainable strategies and circular economy principles in the sector.

Recycling aggregates from construction, demolition, and excavation wastes (“CDEW”) for use in construction makes good sense. Reuse of this material reduces demand on finite primary aggregates and reduces the amount of waste to landfill.

It helps the sector meet its regulatory commitments too. European Union legislation requires 70% of construction and demolition waste to be recycled, with none going to landfill. In the UK, the 2021 Environment Act set similar targets to curtail the construction, demolition and excavation refuse that accounted for 62% of the country’s waste in 2018.

CDEW contributes approximately 20-25% of total aggregate supply to the construction industry in the UK, according to the Mineral Products Association, the highest proportion in Europe.

It is generally assumed that all construction waste which can be recycled into aggregates is being used. Demolition and waste companies have adopted vertically integrated business models to provide a full service offering to the construction sector, completing demolition, clearance, screening and recycling of materials.
 

M&A is afoot in CDEW recycling

There has been little M&A activity in the sector in recent years, which is largely fragmented and characterised by many small and medium sized players serving local markets. But in recent months there has been a flurry of M&A activity involving larger building materials companies in a strategically important development. Three high profile UK deals have been announced in the past six months:

• Hanson announced the acquisition of Mick George, a £220m turnover, market leading specialist in construction and demolition waste. The deal is awaiting Competition Authority approval;
• Aggregate Industries, part of Holcim Group announced two transactions. The first was the acquisition of Wiltshire Heavy Building Materials, a building materials, muck away and demolition equipment hire company;
• The second deal by Aggregate Industries was the acquisition of Sivyer Logistics, a £30m turnover London focused waste and materials management service company.
   

Given that the market has likely maximised its output, what is attracting large corporates to M&A in the sector? We see two key reasons why corporates are keen on recycled aggregates right now.

1. Acquisitions help advance corporate sustainability goals

Large building materials corporates have stated their ambition to be more sustainable in their operations. These goals are becoming ever-more specific and businesses need to prove to stakeholders that progress is being made. Strategic acquisitions can really help businesses enhance their sustainability credentials and advance a corporate’s journey towards net zero.

Aggregate Industries described its acquisition of Wiltshire Heavy Building Materials as "...accelerating Holcim’s leadership in circular construction..." and "...to advance our global goal of recycling 10 million tons of construction & demolition waste by 2025...building new from the old with products like ECOPact+, our green concrete with recycled aggregates inside."

In a press release relating to the acquisition of Mick George, Hanson UK CEO Simon Willis said, “The acquisition of Mick George Group is a strong fit for us and another significant step towards our target to offer circular alternatives for half of our concrete products by 2030.... Promoting circularity and consequently recycling, reusing, and thereby reducing the use of primary raw materials, is crucial to achieving net zero.”

BDO’s second quarterly Rethink survey of 2023 revealed that over half of businesses in the Real Estate & Construction sector are working to introduce formal reporting on sustainability and ESG frameworks over the next 12-18 months, a higher level than that of any other sector covered in the survey.

In order to achieve specific sustainable goals, M&A can be a helpful tool, and could be considered a cost of doing business “well” with regards to sustainability.

2. Acquisitions secure supply and professionalise the market

Construction companies are making pledges to use a certain volume or proportion of recycled aggregates in their output, however the availability of these in the market is unlikely to increase. In future, this is likely to lead to increasing competition for materials, potential short falls and rising prices. There will be increasing benefits to having control of a supply of these materials, allowing pledges to be met while benefiting from the brand impact of contributing to a circular economy.

Large corporates can also professionalise a fragmented and localised market, absorbing acquired entities into vertically integrated models. Safety, governance, and ethics are all key parts of the ESG agenda, in which large building materials companies have experience and objectives.
 

M&A is driving a more sustainable future for Building Products & Services

There are many innovations in flight in Building Products & Services, particularly those focused on reducing or remediating the carbon impact of cement production. From low/no cementitious concrete to additives reducing the cementitious material requirement, to the use of alternative fuels for primary cement production, there is a wealth of new technologies in development driving a more sustainable future for the sector.

CDEW recycling acquisitions are bringing multi-faceted opportunities to corporates, and we anticipate further consolidation of the sector. We expect to see this see investment and M&A drive growth across the wider Building Products & Services sector too, especially where there are innovations that advance the circular economy or sustainability agenda.