Guy Hands' private-equity group has made about £1bn profit from investing in the waste disposal market after selling the UK's biggest landfill site operator for £1.4bn yesterday.
Terra Firma Capital Partners, which was set up by Mr Hands after he quit the Japanese bank Nomura, has sold WRG, the former Waste Recycling Group, to Spain's Fomento de Construcciones y Contratas (FCC).
Since buying Waste Recycling for £531m in 2003, Mr Hands has created a European waste giant that has exploited the market for converting the methane gas produced by rubbish sites into green electricity,f as well as the evolving landfill industry.
Fomento is buying only the Terra Firma's landfill business, which is Britain's largest, leaving the private-equity group owning the waste-to-energy division. The private-equity group has lined up the former chief executive of Jarvis, Alan Lovell, to run the renewable energy arm before its anticipated IPO.
WRG also includes the former Shanks' landfill assets, which Terra Firma acquired for £227m in 2004. The deal makes FCC a major pan-European waste management operator, adding to its landfill businesses in Spain, Austria and a number of eastern European markets.
Analysts estimated that Terra Firma had made about £1bn profit so far from its investment in the sector, including the renewable energy business it is retaining. Mr Hands said yesterday he spotted the gap in the waste recycling market three years ago because stricter regulation meant there was a greater need to develop infrastructure to provide the future alternatives to landfill assets.
The spotlight has fallen on to Britain's £7bn waste sector in recent months, not previously a stock market darling. Institutional investors have realised there is money to be made from the sector, given the Government's green energy pledges and attempts to stop people sending too much rubbish to the tip. The Government is increasing the tax levied on waste going to landfill by at least £3 per tonne each year.
Additionally, the European Union has stipulated that all waste must be treated before being sent to landfill sites from next year.
Mr Hands is selling WRG to avoid needing to foot his £3bn share of the industry's anticipated £10bn investment bill over the next 10 years. He had previously said he would prefer to spend the cash rather than sell up so soon. WRG handles 13 million tonnes of waste each year and operates recycling sites across the UK.
City institutions will get the chance to invest directly in the sector towards the end of the year, when Severn Trent is due to demerge Biffa, the UK's biggest waste manager.Reuse content