Smart Metering Systems co-founder Steve Timoney (right) believes KKR is trying to buy his company on the cheap. Photo: Phil Wilkinson
The Masters of the Universe on Wall Street pride themselves on finding opportunities to make money. Latest prize on offer? A smart meter in your home.
Private equity giant KKR is in a £1.3 billion bid for London Stock Exchange-listed service provider Smart Metering Systems (SMS), hoping to cash in on an ambitious UK rollout plan for the device.
Last month, KKR put forward an offer price of 955 pence per share, representing a significant 40% premium to the pre-float share price.
But the buyout group faces resistance from SMS' two founders, Alan Foy and Steve Timoneys believe that KKR is trying to buy their company on the cheap. They have joined forces with PrimeStone Capital, backed by former Caryle bosses, to push for a higher price, saying the current price is “disappointing”.
The battle sheds light on the power struggle for ownership of Britain's smart meter operators as the government tries to reach net zero.
Under an ambitious rollout plan, the government hopes to have smart meters installed in 85% of UK homes by 2025. Today their number has reached 59%, which is equivalent to almost 34 million installed devices.
Smart meters are traditional gas and electricity meters, but with additional software. They are equipped with GPS, which transmits real-time usage data to providers.
Proponents say the devices can help households save on bills by better managing usage, although there are concerns about surveillance and whether consumers have a choice. in action.
The government has been supporting the adoption of smart meters for years, hoping they will eventually help improve energy efficiency and manage electricity demand by allowing utility companies to pay people to use less energy during peak hours.
For their owners, smart meters offer a steady stream of cash.
Suppliers such as SMS receive an annual rental fee from energy companies such as British Gas for each smart meter installed. Customers ultimately pay this fee as part of their utility bill.
SMS will initially have to spend money on installing smart meters, shelling out around £420 to purchase a smart meter from a manufacturer such as Elster and Landis+Gyr and install it on the wall of the house.
But once the box fixed, the smart meter acts like an ATM for the owner.
Analysts estimate that energy companies pay around £45 a year to rent a box from smart meter providers, and this fee is indexed to inflation.
< p>Contracts are concluded for a period of 15 to 20 years, which provides a virtually reliable source of income. In practice, contracts can last even longer, until the machine itself stops working.
In finance, such opportunities are rare. Add in the lower borrowing costs enjoyed by many private equity firms and investment banks, and the rewards offered to Wall Street financial engineers become clear.
Smart meters are attractive to private equity investors because companies take on huge amounts of debt to buy companies. This means they need high cash generating businesses to help pay off that debt as well as pay their investors.
As a result, investors are rushing to buy smart meter providers because of the wall of money they promise.
Suppliers like SMS provide a guaranteed cash flow every month, which is invaluable when a deadline approaches debt repayment.
Now there is a struggle to see who can capture the largest share of the market. “It's a land grab right now,” says one industry observer.
There are relatively few players in the market, making supplier ownership even more lucrative. According to the Competition and Markets Authority, SMS is one of four major operators along with Calisen, Macquarie and Horizon.
Calisen is owned by a consortium of Blackrock, Goldman Sachs and others. Macquarie is an Australian investment giant. In the UK he has a vague reputation as the former owner of Thames Water.
Kalisen was once owned by KKR. The firm listed the company on the stock market at the start of 2020, but less than a year later it was sold privately for £1.4 billion.
BlackRock boss Larry Fink has hailed smart meters as a sound investment amid increased demand for sustainable technology. Photo: Victor J. Blue/Bloomberg
KKR isn't the only Wall Street investor looking to capitalize on net zero gold. hurry. Investment giant BlackRock last week paid $12.5bn (£9.9bn) to buy Global Infrastructure Partners, an asset manager with significant green assets.
Chief Executive Larry Fink said the move to The green economy, supported by the government, has become a key absorption factor.
A day later, General Atlantic, another private equity fund, got in on the action with a purchase of the green economy. -oriented Actis infrastructure manager. Actis has around 37 companies in its portfolio spread across the globe and is focused on net-zero opportunities.
The battle over SMS is expected to come to a head on Thursday when the initial deadline for voting on the deal expires.
The battle over SMS is expected to come to a head on Thursday, when the initial deadline to vote on the deal expires.
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Foy, Timoney and PrimeStone collectively own 18% of SMS shares. KKR requires 75% of shareholders to support its deal, meaning even a small rebellion or low turnout could derail its deal.
KKR has several options, including raising rates and lowering votes. threshold from 75% to 50% or extension of the period. Sources close to the deal suggest all options remain on the table.
Next time you check your smart meter display, remember the battle over who will own it.
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