This post was originally published on this site
Shares in water and waste management group Pennon surged more than 9% on Monday on reports that U.S. buyout group KKR had made an early bid to buy Viridor, its recycling arm.
Pennon, which is owned by South West Water, announced a strategic review of Viridor in September which could lead to a sale or demerger of the business. Analysts have valued Viridor, which burns waste to generate energy, at between £3 billion and £3.8 billion. The company’s bankers, Morgan Stanley and Barclays, are understood to be sounding out potential buyers, according to a person close to the situation.
Pennon declined to comment on KKR’s approach and the potential sale, but said: “The review is ongoing and all options are being considered. We will update the market as and when it is appropriate to do so.”
Pennon shares were up 8.595% at 1,093 pence in early morning London trading, making the stock the second-best performer in the FTSE 250. The talks were first reported in the Sunday Telegraph.
Private equity groups find the waste and recycling industry attractive because it generates a steady stream of revenues and is typically protected from any downturns in the wider economy. Contracts are often long term, providing buyout groups with insight into future cash flows.
Terra Firma, the buyout group run by Guy Hands, was one of the first to invest in the sector when he acquired Waste Recycling Group for £530 million as well as the landfill sites of Shanks Group. Just three years later, he sold the WRG investment for £1.4 billion to Spain’s Fomento de Construcciones y Contratas.
KKR closed its €5.8 billion flagship fund focused on transactions in Western Europe in November. It is the largest war chest KKR has raised specifically for deals in Europe, Private Equity News previously reported.
The U.S. buyout group has shown interest in the waste management sector globally. Last year, it paid $530 million to buy a 60% stake in India’s Ramky Enviro Engineers, which provides waste disposal and other environmental services. KKR, which bought the stake through its third $9.3 billion flagship Asia fund, was seeking to take advantage of Prime Minister Narendra Modi’s plan to improve the country’s sanitization infrastructure.
At the time, Robert Antablin and Ken Mehlman, co-heads of KKR Global Impact, said: “Responsibly managing waste is a critical global challenge, particularly in one of the world’s fastest-growing nations.”
KKR was contacted for comment.
