UK circular economy deals defy downturn, BDO reveals

A total of £2bn has been deployed into circular economy investments in 12 months, according to a report launched by accountancy and business advisory firm BDO LLP.

Disclosed capital has increased by more than 50% year-on-year, reaching £1.328bn in 2023 and bucking wider UK M&A trends.

The circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, and recycling materials and products for as long as possible. This differs from the traditional, linear economic model, which is based on a make-consume-dispose pattern. 

BDO’s annual Investors in Circular Economy report found that venture capital investors accounted for 58% of 2023 investments with an average disclosed cheque size of £7.9m, up 60% from £4.9m in 2022. Mid-market private equity investors were responsible for 21% of transactions.  

Growth capital investor, BGF has been the most active UK circular economy investor over a three-year period with 15 transactions and Foresight led the most 2023 deals with five investments made. 

Rory McPherson, deal advisory partner, said: “We continue to see circular economy deals out-pace the rest of the UK M&A market. As well as exceptional deal value and volume, we’re seeing many high-quality transactions with innovative businesses right across the UK being backed to support their scale-up journey. 

“We’re excited by the level of activity in the sector and its future potential as businesses continue to create value, reduce waste, and drive inefficiencies, as well as driving wider benefits for society and delivering against environmental goals.”

BDO’s research found industrials and manufacturing is the most prominent sector for circular economy investment for the third year in a row, accounting for 34% of deal volumes in 2022, followed by TMT at 28% and retail, consumer and leisure at 16%. 

Todd Mills, circular economy M&A at BDO LLP, added: “ESG continues to move higher up the agenda for investors as they seek strong returns that also make a positive environmental impact. The economic benefits of investing in the circular economy are clear and compelling. 

“Looking ahead, we expect to see increasing interest from trade investors, with high quality circular economy businesses attracting premium valuations as the competition for assets hots up. This presents an opportunity for financial investors to collaborate with specialist trade players to corroborate circular technologies and business models, reducing risk and increasing confidence of an even more successful outcome.”