Advanced Drainage Systems, Alkemy, Oceansix and other M&As could mark a pivotal opportunity point in the recycling industry

The plastic recycling industry is experiencing a boom in mergers and acquisitions driven by growing awareness of the industry’s structural growth opportunities, fast evolving environmental regulations, and pandemic-related market changes. Most industry observers agree acquisition activity is currently at an all-time high, and most expect continued strong levels of activity looking forward. With the structure of the industry’ supply dynamics changing, there are a number of implications for the plastic recycling market.

An attractive sector?
 
The global plastic recycling market was   estimated  to generate revenues of USD 45.5 billion in 2021, and is expected to grow at 7.5% p.a. to reach USD 65.3 billion by 2026. This solid market growth rate is expected to be driven by increasingly favorable government regulations supporting the reduction of plastic waste, growing consumer awareness of global warming which has accelerated throughout the pandemic, and improving recycling technologies. It’s noteworthy that the sector’s main players are focused upon developing innovative solutions to the sector’s key growth challenges such as the growing use of virgin plastic and the lack of an effective plastic collection system.
 

Consolidating for strategic reasons

 The significant pick-up in plastic recycling M&A across the plastic recycling industry makes strategic sense as the sector’s future growth depends upon the development of innovative solutions to complex long term challenges. Forward-looking management teams in the sector are aiming to build their intellectual property competitive advantages at a time when the sector’s growth potential is particularly strong and visible. Innovation is key in this sector as it’s particularly in need of solutions which can be scaled globally through automation and standardization. So by investing in best-in-class technological and engineering solutions, a number of key players are positioning themselves to become long term leaders in a booming industry.

For example, in the US, Advanced Drainage Systems, one of the largest US recycling companies, recently announced the acquisition of Jet Polymer Recycling, a supplier of recycled polypropylene. Management alluded to recycled polypropylene as a key growth area as the company aims to increase the percentage of plastic feedstock in its supply chain from post-consumer or post-industrial material. And in Israel,  Alkemy (TSX:AKMY), a leading plastic recycling technology group, recently agreed to acquire Oceansix, a German company affiliated to the recycling conglomerate Cabka owned by Gat Ramon who is considered the “Steve Jobbs” of the recycling world. Alkemy has developed a unique recycling process for plastic bags and Oceansix is focused upon developing innovative technologies and product solutions from recovered materials. This is an example of an emerging market leader expanding its global footprint via strategic M&A to cover Europe and then the rest of the world. In both these examples, the respective management teams are positioning themselves to increase their future production in profitable business lines ahead of the structural market growth expected in the coming years.

Indeed the market has been preoccupied with big moves like Las Vegas Sands Corp (LVS), Wynn Resorts Ltd (WYNN) and Discovery (Disk). When it comes to green energy, a lot of talk in the market revolved around Brookfield renewable partners (BEP), Next Era energy partners (NEP) and so forth. This makes it easy to overlook other important developments such as the crucial consolidation we see occurring right now in the recycling industry.

Final Take - Outlook:

The plastic recycling industry is in the midst of structural change. The recent pick-up in merger and acquisitions across the sector reflects a land grab for the best intellectual property in a sector whose future growth depends upon innovating to address a number of significant challenges. With 7.5% p.a. revenue growth expected until 2026, the global plastic recycling sector’s outlook is bright, and the outlook is particularly strong for those businesses such as Advanced Drainage Systems and Alkemy who aim to position themselves with best-in-class global recycling solutions which can be scaled globally.