Energy supplier OVO to explore options including sale

by Admin
June 29, 2024

Britain’s fourth-biggest household energy supplier is lining up bankers to explore options including bringing in a new investor or a sale, 15 years after it launched in a bid to challenge the industry’s oligopoly.

Sky News has learnt that OVO Group, which was founded by Stephen Fitzpatrick, is close to hiring Rothschild to assist with a strategic review of the business.

City sources said this weekend that a range of possibilities would be considered during the process, which is expected to take several months.

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These are likely to include a refinancing – with talks already underway about OVO’s existing borrowings – as well as issuing new shares to prospective investors, or a partial or full sale by some of the company’s shareholders.

An outright sale of the business is considered by insiders to be unlikely at this point, but is expected to be explored as part of the strategic review.

OVO, which has about four million customers, sits behind Centrica, the owner of British Gas, Octopus Energy and E.ON Next in the rankings of Britain’s leading gas and electricity suppliers, according to market share data provided by Ofgem, the industry regulator.

Under Mr Fitzpatrick, who launched OVO in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established players.

OVO’s transformational moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain’s leading energy companies.

Its growth has not been without difficulties, with insiders referring to a challenged relationship with Ofgem and a torrent of customer complaints about overcharging.

In recent months, OVO’s shareholders have reshaped its leadership team, bringing in the former J Sainsbury chief executive Justin King as its chairman.

In May, Mr King recruited David Buttress, the former Just Eat boss who was briefly Boris Johnson’s cost-of-living tsar, as the energy group’s new chief executive.

Mr Buttress replaced Raman Bhatia, who left to join Starling Bank.

He is expected to focus on sharpening the company’s customer service performance as well as exploring ways to further diversify its products and services.

Key to OVO’s valuation will be the growth of its technology platform, Kaluza, which was set up to license its software to other energy suppliers, and provides customers with smart electric vehicle charging and heat pumps.

OVO recently announced that AGL Energy, one of Australia’s biggest energy suppliers, had bought a 20% stake in Kaluza at a $500m (£395m) valuation.

Kaluza is understood to be exploring further expansion opportunities in Europe, Japan and the US.

OVO has also entered the electric vehicle car charging sector under the brand Charge Anywhere, adding 34,000 public charging points across the UK.

In 2022, OVO Group made an unadjusted loss of £1.3bn, which it blamed on a decline in the value of energy it had bought in advance to meet future supply commitments.

It said this had “no cash impact” in a corporate filing, and that this value would rise as customers used the energy it had bought.

Last summer, the company announced a £200m secondary share sale which saw existing investors Mayfair Equity Partners and Morgan Stanley Investment Management increasing their stakes in the company.

Other investors include Mitsubishi Corporation, the Japanese conglomerate.

Mayfair is thought to hold a stake of over 30%, while Mitsubishi owns approximately 20%.

Mr Fitzpatrick also remains a significant shareholder.

This weekend, it was unclear which of OVO’s investors might seek a disposal of their interests, although insiders acknowledged that a sizeable proportion of the company’s shares could end up changing hands.

Like its rivals, OVO has been contending with the impact of the industry price cap after a period of enormous price spikes which sent customers’ bills soaring.

Last month, Ofgem said the cap would fall in the quarter from July to September by the annualised equivalent of £122, to £1568.

Other big players in the sector include EDF and Scottish Power, which is owned by Spain’s Iberdrola.

In recent months, Octopus Energy, run by Greg Jackson, has crystallised a valuation of over £7bn by selling stakes to a number of new investors.

Centrica has a market valuation on the London Stock Exchange of £7.3bn.

OVO, whose valuation in any major transaction was unclear this weekend, declined to comment.