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KKR enters UK’s energy from waste sector with £4.2bn deal

The deal to acquire Viridor is the second in the UK for KKR's third infrastructure fund after a deal in October to buy broadband provider Hyperoptic.

KKR’s deal to buy UK-based energy-from-waste generator Viridor has sealed its entry to a market it had been looking at “for quite some time”, the firm told Infrastructure Investor.

The firm agreed the deal last week at an enterprise value of £4.2 billion ($5 billion; €4.6 billion) from Pennon Group via its $7.4 billion Global Infrastructure Investors III fund, with Viridor one of the largest EfW producers in the country. The company owns 10 operating plants with capacity of 287MW from facilities including anaerobic digestion, solar and landfill gas. It also has one site under construction.

“We’ve been focused on the UK EfW market for quite some time and Viridor is one of the bigger players in the market,” said James Gordon, principal in KKR’s European infrastructure team.

Viridor recorded a 19.1 percent increase in its EBITDA for 2018/19, reaching £178.9 million and an £88.5 million profit before tax, representing a 25 percent increase.

“Fundamentally, if we look at the UK in the short to medium-term, it’s in desperate need of EfW capacity. You have a very strong supply and demand dynamic in the EfW market, which not only gives protection but also quite a significant growth opportunity,” added Gordon. He noted that Viridor typically has off-take agreements averaging about 15 years.

Landfill was one of the smallest contributors to Viridor’s income and Gordon explained the market was shifting from this type of generation.

“The waste market is moving out of landfill, which is unsustainable, to EfW so, that’s quite interesting,” he said. “The next step in the evolution of this market is making the economy more circular and we are quite excited about a more circular economy for the UK and the growing opportunity that provides.”

Gordon also said that the coronavirus crisis meant KKR had to move quickly to get the deal done, with advisors working round the clock to ensure it proceeded.

The deal is expected to close in summer 2020.

Viridor is the second UK deal from KKR’s third infrastructure fund, following its agreement to buy broadband provider Hyperoptic last October. The fund has made eight investments to date, including several oil and gas transmission deals, such as a tie-up with BlackRock to invest in Abu Dhabi’s national oil pipelines, in a deal worth $4 billion.