KBS - Environmental Services - Market Insight

MARKET INSIGHT – ENVIRONMENTAL SERVICES

MARKET INSIGHT • The UK environmental services sector is a critical part of the green economy, encompassing businesses that provide solutions for managing, protecting and restoring the natural environment. This includes waste management and recycling, water and wastewater treatment, environmental consultancy, remediation, air quality management, renewable energy support services and ESG/sustainability advisory. • The sector serves industries such as construction, utilities, energy, manufacturing, real estate, government and infrastructure. It plays a critical role in helping organisations comply with environmental regulations, achieve sustainability targets and transition towards circular economy models. • The environmental services sector is currently estimated to generate annual revenues exceeding £35bn, contributing around £20bn in GVA to the UK economy. It employs over 400,000 people, representing a key component of the UK’s net-zero transition and sustainable infrastructure agenda. Revenue Waste-to-Energy Plant Operation in the UK Total value (£) and annual change from 2012 - 2030. Includes 5-year outlook

3

32%

Forecasted

2025 Annual Revenue (£bn) 1.9 2025 Change 4%

2.4

24%

1.8

16%

1.2

8%

0.6

0%

0

-8%

2012

2014 2016 2018 2020 2022

2024 2026 2028 2030

Annual Revenue (£b)

Change (%)

Source: IBISWorld

• The market has grown steadily at 4-6% annually over the past five years, driven by stricter environmental regulation, corporate ESG compliance and rising investment in circular economy initiatives. The UK government strategy of net-zero by 2050 and policies on waste reduction, biodiversity and use of sustainable resources continue to act as catalysts for structural growth. • The UK also plays a major role in the European Environmental Goods and Services (EEGS) market, exporting technical expertise in environmental consultancy, waste technologies and renewable resource solutions to global markets. Major export partners include EU member states, the United States, and Asia-Pacific economies seeking to align with international sustainability standards. • Geographically in the UK, environmental service activity is widespread but with clusters of strength in the South East (consultancy and compliance services), Scotland (renewables and waste-to-energy) and the Midlands and North West (waste management, recycling and water treatment).

• Segment breakdown: • Waste management and recycling: 35–40% of output • Water and wastewater services: 25–30%

• Environmental consulting and monitoring: 20–25% • Remediation and pollution control: 10–15%

FACTORS DRIVING GROWTH

The UK environmental services sector is experiencing significant growth, primarily driven by strong regulatory pressures and increasing emphasis on sustainability and climate change adaptation.

Key factors influencing growth performance include:

GOVERNMENT REGULATION AND POLICY: This continues to drive a requirement for action in the public and private client space. Several specific initiatives are driving demand for consultancy and compliance services in this sector, particularly involving water and waste management; climate change and energy; Biodiversity Net Gain (BNG); and mandatory ESG strategies and reporting. CLIENT DEMAND: Corporate clients, driven by stakeholder pressure and a growing awareness that good environmental performance makes good business sense, are increasingly seeking sophisticated, holistic sustainability solutions rather than basic compliance. INFRASTRUCTURE DEVELOPMENT: Large-scale national infrastructure projects (NSIPs), including energy transmission and housing, require extensive environmental assessment and management services. TECHNOLOGICAL INNOVATION: The adoption of digital technologies, AI, and smart solutions (i.e. for waste tracking, emissions monitoring and water management) enhances efficiency and creates new service offerings within the sector.

The environmental services sector is currently estimated to generate annual revenues exceeding £35bn , contributing around £20bn in GVA to the UK economy.

M&A ACTIVITY IS RISING IN THE ENVIRONMENTAL SERVICES INDUSTRY

• UK-based environmental firms with advanced digital monitoring, waste-to-energy or sustainability analytics capabilities are attracting significant investor interest.

• Private equity and infrastructure funds remain active, with mid-market M&A focused on regional waste operators, carbon measurement technologies and water management services.

• Cross-border acquisitions are increasing as international buyers seek strategic entry points into the UK’s sustainability and resource efficiency market.

• Joint ventures and partnerships are being driven by industrial policy incentives for green growth, infrastructure decarbonisation, and the push to develop the UK’s circular economy capacity.

OUTLOOK: Due to the tightening of regulations, ESG integration, and the acceleration of environmental infrastructure investment, the sector’s medium-term growth outlook remains robust.

Key challenges include rising energy and operational costs, skills shortages in environmental engineering, and uncertainty around policies regarding recycling and waste reforms.

Nevertheless, the UK environmental services sector is well positioned for continued expansion, consolidation and cross-border investment, particularly in net-zero infrastructure, biodiversity services and digital environmental solutions.

Public concern over environmental issues 2000-2032 25

12pp

Forecasted

20

8pp

15

4pp

10

0pp

5

-4pp

0

-6pp

2000

2005

2010

2015

2020

2025

2030

Change (%) Public concern over environmental issues (Percentage)

Source: IBISWorld

KEY DRIVERS AND MOTIVATIONS FOR ACQUIRERS EXPANSION OF SERVICE OFFERINGS: Acquirers are increasingly targeting environmental consultancies that complement or expand their existing capabilities. This includes acquiring expertise in areas such as ESG (Environmental, Social and Governance) consultancy, decarbonisation strategies, renewable energy and sustainability reporting. GEOGRAPHIC AND MARKET EXPANSION: Environmental consultancy firms are actively acquiring companies to expand their geographic footprint, both within the UK and internationally. As demand for sustainability and environmental services rises globally, consultancies are looking to extend their reach into new regions, particularly those with stringent environmental regulations. DIVERSIFICATION INTO HIGH-GROWTH AREAS: With growing concerns around climate change and sustainability, many environmental consultancy firms are seeking acquisitions that allow them to diversify into high-growth areas such as renewable energy, waste management, biodiversity and environmental impact assessments. These areas are expected to experience sustained demand, especially as businesses and governments continue to set ambitious carbon reduction targets. INCREASED REGULATORY PRESSURES AND COMPLIANCE NEEDS: Governments globally, including in the UK, are implementing stricter environmental regulations which businesses must comply with. As a result, consultancies that can assist clients in navigating these regulations are in high demand. ENHANCING TECHNOLOGY AND DATA CAPABILITIES: Technology is playing an increasingly important role in the environmental consultancy sector. Acquiring firms with advanced software platforms for data analysis, environmental monitoring and reporting can provide acquirers with a competitive edge. The integration of technology enables consultancies to provide more accurate, scalable and efficient services to clients. STRONG DEMAND FOR ESG AND SUSTAINABILITY EXPERTISE: With an increased focus on ESG criteria from corporations, governments and consumers, investors are eager to back firms that provide consultancy services related to ESG reporting, carbon neutrality, renewable energy and sustainable practices. This is not only a response to client demand but also to the growing regulatory environment that mandates greater sustainability transparency.

CONSOLIDATION AND MARKET LEADERSHIP OPPORTUNITIES: As the environmental consultancy sector is fragmented, private equity firms see opportunities to consolidate smaller firms, create larger, more integrated service providers, and achieve economies of scale. By acquiring multiple firms and integrating their services, private equity firms can create market leaders that are more competitive in the space. GOVERNMENT POLICIES AND LEGISLATION: Policies such as the UK’s Net Zero 2050, carbon tax regulations, and international climate agreements are pushing businesses across sectors to adopt sustainable practices. This has created a surge in demand for consultancy services that can guide businesses in meeting these targets, driving investment into firms that provide these services.

The market has grown steadily at 4-6% annually over the past five years, driven by stricter environmental regulation.

FACTORS DRIVING APPETITE FOR M&A

The M&A market in the UK environmental services sector remains buoyant, with strong interest from a diverse pool of buyers including private equity (PE) firms and large multidisciplinary consultancies.

Appetite continues to be driven by robust regulatory changes, infrastructure projects and increasing corporate demand for environmental, social and governance (ESG) services.

We have seen that both deal volume and values are strong, with companies possessing solid ESG credentials commanding a premium.

Deal values that have been calculated on adjusted EBITDA/earnings multiples range from 5/6x to double-digit figures, depending on various factors such as recurring and contracted revenue, vertical specialisation, strategic positioning and scalability.

Key drivers for the surge in buyer demand include:

1. LONG-TERM CONTRACTS & RECURRING REVENUE

• Companies with multi-year service agreements (e.g. municipal waste, utilities, industrial environmental management) command premium valuations.

• Recurring, regulated or subscription-based revenues reduce cyclicality and enhance investor confidence.

2. TECHNOLOGY, IP & DIGITAL CAPABILITIES

• Proprietary treatment technologies, recycling innovations or digital environmental monitoring systems drive scalability and defensibility.

• AI- or data-enabled services supporting ESG reporting or emissions tracking attract premium multiples.

3. SUSTAINABILITY & ESG ALIGNMENT

• Firms directly enabling carbon reduction, resource recovery or circular economy goals are favoured by strategic and private equity investors.

• Demonstrable ESG leadership enhances access to green finance and strategic buyers.

• Businesses with established compliance frameworks for complex regulations (e.g., environmental permits, waste handling certifications, carbon reporting) benefit from high entry barriers. 4. REGULATORY POSITIONING & COMPLIANCE EXPERTISE • Ownership of critical assets (e.g. treatment plants, transfer stations, recycling facilities) supports cashflow visibility and higher valuation multiples. 5. INFRASTRUCTURE ASSETS & CAPITAL INTENSITY

6. MARKET POSITION & CUSTOMER DIVERSIFICATION

• Broad client bases across industrial, public sector and commercial markets reduce risk.

• Regional or national coverage with scalable capacity drives consolidation appeal.

• M&A activity is strong in waste management, recycling and ESG consultancy as investors consolidate fragmented markets and seek sustainable infrastructure platforms. 7. PRIVATE EQUITY & STRATEGIC CONSOLIDATION ACTIVITY • Businesses focused on resource recovery, waste-to-value and low-carbon operations attract higher valuations due to policy alignment and long-term demand growth. 8. INNOVATION & CIRCULAR ECONOMY FOCUS • Acquiring companies is a key strategy to quickly build capacity, obtain specific skillsets (e.g. in climate resilience, biodiversity or digital services) and address the ‘war for talent’. 9. ACCESS TO TALENT AND EXPERTISE STRATEGIC VALUE Acquisitions are not just for operational improvements but for generating real value through strategic investment in areas such as digital transformation and the energy transition. ESG PREMIUM Companies with strong ESG credentials and verified environmental practices command a premium in sales price due to being perceived as lower-risk and better aligned with future sustainability trends. SECTOR FUNDAMENTALS Long-term regulatory drivers, non-discretionary demand for environmental services, and recurring revenue streams provide stability and profitability, making targets highly attractive. Deal values in the UK environmental services sector are strong for several reasons:

The competitive market amongst buyers supports our confidence that deal values are expected to continue on an upward trend.

M&A INTEREST FROM ACQUIRERS AND INVESTMENT ROUTES

Around 120 potential acquirers have registered interest with KBS Corporate in buying, or investing into, companies in this sector, divided among the following categories:

SYNERGY BUYERS These firms look for acquisitions that can streamline operations or enhance efficiencies.

Larger consultancies looking to enhance their service offerings - particularly in niche areas such as ecology, biodiversity, energy transition and sustainability - will target smaller firms that bring specialised expertise. This can help strengthen their portfolio, add complementary service lines (e.g. environmental risk assessments, carbon reduction strategies) or expand into new geographic markets. Engineering and construction firms often acquire environmental consultancies to provide integrated solutions for their clients. This helps them to offer a more comprehensive service package, particularly in projects requiring environmental impact assessments, regulatory compliance and environmental remediation. COMPLEMENTARY BUYERS These acquirers seek firms that can enhance their existing offerings or fill gaps in their services. Firms that focus on corporate sustainability, ESG and energy transition advisory services may seek to acquire environmental consultancies to deepen their expertise in areas such as carbon footprinting, environmental risk management and biodiversity assessments. Smaller, rapidly growing consultancies focused on specific environmental issues, such as renewable energy, carbon trading or environmental impact assessments, can benefit from an acquisition to gain the resources, market presence and capability to scale quickly. STRATEGIC BUYERS These firms are interested in acquiring companies to achieve specific strategic goals, such as geographic expansion or market penetration.

Large, often international, multidisciplinary consultancies acquire smaller firms to expand service offerings, integrate new technologies, and grow their market share.

Corporations with a strong focus on reducing their carbon footprint and achieving sustainability targets may acquire environmental consultancy firms to ensure compliance with new regulations, enhance their own sustainability strategies, or use the consultancy’s expertise to support their supply chain and operations.

PRIVATE EQUITY (PE) AND INFRASTRUCTURE FUNDS These financial buyers are attracted by the sector’s resilience, strong cash flow, and long-term regulatory drivers. They focus on capital deployment into stable, recurring revenue platforms. PE firms have been very active in the market, including investors such as Ares Capital and Palatine Private Equity.

FINANCIAL AND SERVICES SECTOR INVESTORS This group, which includes companies involved in ethical investing and green finance, is driving demand for advisory services related to corporate ESG strategy, due diligence, and sustainability reporting.

KEY ACQUIRERS AND INVESTORS Major players in this sector include

M&A ACTIVITY IN THE ENVIRONMENTAL SERVICES SECTOR

MEREBROOK CONSULTING ACQUIRED BY M&L HOLDINGS

KBS DEAL

Merebrook, based in Derbyshire, became an independent environmental engineering consultancy following its disinvestment from Spanish group IDOM, having been acquired by construction, building products and associated industries portfolio M&L Holdings.

MRC ACQUIRED BY VEOLIA

MRC, based in Madrid and with a UK location in Edinburgh, which provides consultancy services within the energy, water and sanitation sectors, was acquired by Seureca, the Consulting Engineering and Strategic & Operational Assistance division of the Veolia group.

ELLIOTT ENVIRONMENTAL SERVICES ACQUIRED BY CRISP GROUP

KBS DEAL

Elliott, a Somerset-based HVAC specialist focused largely on air quality, ventilation and energy efficiency design and installation projects, was sold to Crisp Group in a deal advised by KBS Corporate.

MULTIPLE ACQUISITIONS BY SLR CONSULTING

Since 2022, UK-based global sustainability consultancy SLR has made nine acquisitions including MacArthur Green (ornithology and ecology services), Wardell Armstrong (environmental, engineering and mining) and Ibis Consulting (ESG advisory).

ENVIRONMENTAL PROJECT MANAGEMENT (EPM) SOLD TO GHAZALI SYED

KBS DEAL

Suffolk-based EPM, which specialises in the niche sector of dryer optimisation and abatement technologies for the print industry, was sold to Ghazali Syed, who offered an excellent strategic fit with existing environmental and renewables business interests.

PRO-CHECK ACQUIRED BY SERVEST

KBS DEAL

Pro-Check Environmental Services (Northern), a Dundee-based pest control and environmental solutions company, was sold to Servest Group, a global provider of cleaning, pest control and waste management services.

PRIVATE EQUITY TRANSACTIONS

SILKSTONE ACQUIRED BY CTS, BACKED BY PALATINE PRIVATE EQUITY

KBS DEAL

Silkstone Environmental, a highly regarded minerals and waste consultancy company based in Sheffield, was acquired by Leicester-based Construction Testing Solutions (CTS) to add depth and scale to its capabilities.

In September 2024, Cheshire-based RSK, a global sustainable solutions leader with more than 200 environmental, engineering and technical services businesses, announced investment from a consortium including Searchlight, Penta Capital and Ares Management. £520M INVESTMENT INTO RSK GROUP

TriStar, a leading provider of engineered plastic solutions and self-lubricating bearings, was acquired by Sky Peak, an operationally driven investment firm focused on building long term partnerships with founder-led, lower middle market industrial businesses. TRISTAR PLASTICS ACQUIRED BY SKY PEAK CAPITAL

MULTIPLE ACQUISITIONS BY ADLER & ALLAN, BACKED BY GOLDMAN SACHS

Since 2021, Yorkshire-based environmental risk reduction specialist Adler & Allan has made 11 acquisitions including Glanville Environmental (drains and sewers), MEL Environmental (pollution incident response) and Utility Line (EV and grid connections).

Since its £520m investment, RSK has acquired Scottish companies AJ Engineering & Construction and Northern Engineering & Welding, sustainable building design firm N-Able Group and inter-disciplinary construction consultancy Kendall Kingscott. MULTIPLE ACQUISITIONS BY RSK GROUP

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