Terra Firma sells waste business for £1.4bn

Terra Firma, the UK private equity firm, will hold on to the waste-to-energy arm of Waste Recycling Group, which analysts say could be worth £650m, following a sale of the waste disposal business to FCC of Spain.

Terra Firma Capital Partners, the private equity group headed by Guy Hands, has sold the waste disposal unit of Waste Recycling Group to Fomento de Construcciones y Contratas (FCC), a Spanish construction and service group, for £1.4 billion (€2.03 billion).
The transaction follows the demerger in May of Waste Recycling Group into waste disposal and renewable energy businesses.
The sale does not include the renewable energy business, which is the largest renewable power generation company in the UK. Last month, Terra Firma appointed Alan Lovell, chief executive officer of UK support services business Jarvis, to head the business and attempt a listing or a sale.

Deutsche Bank and Merrill Lynch advised Terra Firma. Morgan Stanley advised FCC.

Terra Firma could make a profit of around £1 billion from the sale of Waste Recycling Group said media reports, with analysts valuing the renewable energy business at around £650 million.

According to a PPM obtained by PrivateEquityOnline.com, Terra Firma has already returned €390 million to shareholders following a €750 million refinancing in December 2004, one of the largest high yield debt issues to date. In addition, €309 million was repaid to acquisition banks Barclays and Merrill Lynch.
Hands said in a release that Terra Firma had invested in Waste Recycling Group at a time when the UK waste industry was undergoing “radical change due to stricter regulation and the need to develop the infrastructure that will provide the future alternatives to landfill assets”.
Terra Firma bought the UK landfill operator for £530.9 million in June 2003. Less than a year later, the firm acquired the UK landfill assets of Shanks, a waste services company, for £227 million, adding 80 million cubic metres of landfill space to Waste Recycling Group’s 130 million cubic metres of existing capacity.
During its ownership, Terra Firma also renegotiated contracts for Allington, a €225 million incinerator project in Kent that was seen as an untapped opportunity, according to the PPM. Construction is now underway and the incinerator is expected to begin operations in October.
Waste Recycling Group handles approximately 13 million tonnes of household, commercial and industrial waste each year. The company operates facilities for the reception, recycling and disposal of waste, including a network of waste transfer and recycling centres and a regional network of operating landfill sites.
Private equity interest in the waste management sector has increased as changes to European regulations have driven restructuring of the industry. In January of this year, CVC and KKR bought AVR, the Netherlands’ largest waste management firm, in a deal valued at €1.4 billion including debt. The previous summer, Goldman Sachs Capital Partners and EQT paid $3.8 billion for Danish cleaning company ISS.
The Waste Recycling Group sale follows a busy period for Hands, whose firm is also reported to be mulling a bid for Four Seasons Healthcare, a care homes business, and a £7 billion offer for Thames Water, a water utility unit owned by German energy group RWE. Four Seasons Healthcare is owned by private equity firm Allianz Capital, which acquired the business from Alchemy Partners for £775 million in July 2004.
Terra Firma is currently marketing its third fund with the private equity fund placement groups of Citigroup and Merrill Lynch working on the project. No size has yet been disclosed, but the firm is expected to raise at least €3 billion. Predecessor investment vehicle Terra Firma Capital Partners II raised €2.1 billion in February 2004 and was fully committed earlier this year.