H2 Equity Partners began evaluating a potential investment in Ballast Phoenix in early 2014. Ballast Phoenix was a relatively small but market leading recycling business of incinerator bottom ash (IBA) – a by product of the incineration of non hazardous household waste to generate electricity. As a non-core subsidiary of a distressed Continental European construction conglomerate, a transaction needed to be deliverable and deal with significant carve-out issues relating to shared services, engineering support etc.
At the time of the investment, Ballast Phoenix (based in Bourne – Lincolnshire) was the UK’s market leader in IBA recycling. IBA recycling is a small but fast growing segment of the recycling industry as government and councils actively avoid landfill and promote the incineration of waste. The company operated seven sites and had the ability to grow aggressively provided significant capital expenditure could be funded. The business generated annual revenues of ca. £20 million and was profitable. However, the required capex funding to deliver the growth amounted to ca. 2x the annual EBITDA… and the company had never operated on a truly stand-alone basis.
H2’s Investment and Approach
H2 invested in Ballast Phoenix in July 2014. An aggressive growth plan was developed jointly with management aimed at expanding the number of sites from 7 to 12 within a few years. The ambition was to establish Ballast Phoenix as the only “go to” partner in the UK for the large waste management companies that operate on an (inter)national scale. Within six months Ballast Phoenix managed to secure six new contracts, became the preferred recycling partner for one of the largest energy-from-waste operators in the UK, and raised funding to commence building its new processing factories. During this phase the company not only grew rapidly, but also had to strengthen its management team, introduce management reporting and become a business that could operate on a truly stand-alone basis. Combined with specific improvement actions relating to improved pricing and metal extraction within 12 months there was clear visibility to more than double the company EBITDA in just a few years.
A private equity backed trade buyer approached H2 about acquiring Ballast Phoenix, attracted by its market leading position in the UK and the extremely strong visibility of revenue and profit growth for the coming years. The trade buyer had a clear strategy of combining Ballast Phoenix with its own international operations and management and H2 Equity Partners decided to sell the company with Ballast Phoenix management taking leading positions in the new group.