Waste collection and recycling firm Biffa - formerly part of Birmingham-based Severn Trent - has agreed to a £1.2 billion takeover deal from a group of private equity investors.

A consortium of various entities within the Montagu Funds, the Global Infrastructure Partners Funds and UCIL has offered the company's board 350p a share.

The agreement comes after Montagu Private Equity and GE-backed GIP confirmed in late January that they were interested in pursuing a cash offer for the company at 350p a share, a level Biffa said it was prepared to recommend.

At the time, Hg Pooled Management, which had earlier proposed a failed 330p per share offer with Montagu, said it was no longer interested. The Biffa board had rejected a number of proposals from Montagu during the previous four months.

However, there could still be a twist to the saga as Biffa said yesterday that a rival group was considering an offer which could potentially be worth more. Biffa said the other party had been given the same access to due diligence information as Montagu and its bid partners.

Montagu's strength is that it has experience of the waste sector as it formerly owned Cory Environmental, a rival business with a number of landfill sites and local authority contracts.

Biffa, which was spun off from Severn Trent in 2006, has 86 depots - including several in the Midlands - and collects more than four million tonnes of waste a year from around 75,000 industrial and commercial customers and a million households.

Bob Davies, non-executive chairman of Biffa, said the new proposal from Montagu recognised the "considerable value" inherent in the company's market position.

Montagu director Jason Gatenby said Biffa was a market leading business with a great workforce, adding it was based "in a sector we understand well and where we have a demonstrable track record of success."

Waste companies are seen as attractive targets because they benefit from long-term visibility on contracts, as well as from a bottleneck on environmental projects as the UK attempts to meet EU landfill targets.

The business has launched national paper, card and glass collections and recycling services for its industrial and commercial customers, and is offering a treatment service to firms who do not want to pre-sort their own rubbish.

The regulations are designed to reduce the amount of non-hazardous waste sent to landfill. Buckinghamshire-based Biffa. which has 42 treatment and recycling centres and 33 landfill sites, reported operating profits of £90.7 million in the year to March 30. Revenues were £742.7 million.

Montagu is working on the bid with Global Infrastructure Partners, a fund previously involved in the 2006 takeover of London City Airport.

Yesterday's offer is 20p a share higher than Montagu's opening £1.12 billion takeover proposal, which was rejected by Biffa in November.

Seymour Pierce analyst Kevin Lapwood, hinting at further developments in the situation, said yesterday that the 350p a share offer looked to be insufficient.

"There are still several infrastructure investors that would pay more and we still believe that a price closer to 400p is more realistic," he added.