The UK’s circular economy sector has continued to thrive in 2023, with investments reaching record levels despite a challenging economic environment. According to a report released by accountancy and business advisory firm BDO LLP, the number of circular economy related investments in the UK increased by an impressive 30 per cent to 184 transactions in 2023, significantly outperforming the overall UK M&A market, which experienced a 17 per cent drop in volume during the same period. This follows notable growth for the sector in 2022.
The report, titled ‘Investors in Circular Economy’, reveals that disclosed capital deployed into the sector surged by more than 50 per cent year-on-year, reaching £1.328 billion in 2023. The average disclosed investment per deal also increased by 15 per cent to £10.7 million. BDO estimates that the total investment in the UK circular economy in 2023, based on the average disclosed investment, was around £2 billion.
For this report, the circular economy is identified as the business model focussed on maximising the value of resources by keeping them in use for as long as possible through sharing, leasing, reusing, repairing, and recycling. This is distinguished from the traditional linear economic model, which follows a make-consume-dispose pattern.
Venture capital investors played a significant role in the sector’s growth, accounting for 58 per cent of the transactions in 2023. The average disclosed cheque size from venture capital investors increased by 60 per cent from £4.9 million in 2022 to £7.9 million in 2023. Mid-market private equity investors were also active, responsible for 21 per cent of the transactions.
The report highlighted the most active investors in the circular economy sector over the past three years. Growth capital investor BGF topped the list with 15 transactions, while Foresight led the way in 2023 with five investments.
Rory McPherson, deal advisory partner at BDO, commented on the sector’s impressive performance: “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 environment goals.”
The industrials and manufacturing sector remained the most prominent for circular economy investment for the third consecutive year, accounting for 34 per cent of deal volumes in 2022. The technology, media, and telecommunications (TMT) sector followed closely at 28 per cent, whilst the retail, consumer, and leisure sector made up 16 per cent of the deals.
Todd Mills, circular economy M&A at BDO LLP, emphasised the growing importance of environmental, social, and governance (ESG) considerations for investors: “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.”
