The UK waste and recycling sector experienced a record amount of merger and acquisition (M&A) activity last year, as waste volumes continued to fall and recycling efficiency increased.

A total of 48 deals took place during 2011, up from 37 the previous year, according to new research by financial services company Grant Thornton.

It found the most significant rise in acquisitions was of paper recycling companies, where seven deals were completed compared to just one in 2010, and waste electrical recycling firms, five of which changed hands in 2011.

Some of the largest deals included DCC Environmental Britain’s purchase of Oakwood Fuels for just under £30m and Viridor’s acquisition of Community Waste Holding Ltd for £15.75m.

The number of overseas investors entering the market also increased from eight deals done in 2010 to 11 last year, which Nigel Mattravers, principal consultant at Grant Thornton, said augured well for future growth despite a shortage of capital in the market.

The report predicts 2012 will see a similar pattern, with energy from waste and organic waste recycling leading the way, along with “significant opportunities in energy efficiency”.

“We continue to see the waste and environmental space performing as a key growth sector as the legislative agenda continues to push development and growth,” Mattravers added.

“The surge in the number of deals was in part driven by an increasing level of acquisitions made by overseas parties. This is particularly significant as the deals took place while the sector experienced a [15 per cent] drop in waste volumes, largely driven by legislation changes as well as the economic slowdown.”

Grant Thornton is concerned policy uncertainty has not helped investor confidence, although the fact the waste sector is likely to come under renewed focus as one of the priority areas of the £3bn Green Investment Bank (GIB) is viewed as a positive factor. Last month, the government made £80m worth of loans available for small waste projects ahead of the GIB’s expected launch at the end of the year, assuming state aid approval is granted.