The energy supplier Ovo is planning to sell a stake in its software arm at a ‘unicorn’ valuation to strengthen the balance sheet of Britain’s fourth-largest residential gas and electricity group. Sky News has learned that Ovo, with just under four million retail customers, has appointed Arma Partners, the investment bank, to explore options for Kaluza.
This move mirrors a similar strategy by larger rival Octopus Energy, as reported by Sky News, to engage advisors to work on a demerger of its Kraken software arm with a potential valuation exceeding $10bn (£7.4bn). Kaluza, an energy intelligence platform, is 80% owned by Ovo, with the remaining 20% owned by AGL, an Australian energy company. Industry sources indicate that Ovo is aiming for a valuation of well over $1bn for Kaluza in any new transaction.
Kaluza recently announced a licensing partnership with French-based energy group Engie and acquired Beige Technologies, an Australian energy software specialist, to enhance its presence in the Asia-Pacific region. Ovo is also looking to strengthen its financial position by engaging Rothschild, the investment bank, in talks with potential investors to inject around £300m into the company.
Ovo’s efforts to bolster its financial position come as it faces challenges in meeting targets set by Ofgem, the industry regulator. The company has taken proactive measures to align with Ofgem’s new capital rules and is working to meet the requirements. Ovo recently appointed Dame Jayne-Anne Gadhia, former boss of Virgin Money, as the independent chair of its retail arm.
Founded in 2009 by Stephen Fitzpatrick, Ovo has positioned itself as a challenger brand offering superior service to established players in the industry. In 2020, Ovo made a significant move by acquiring the retail supply arm of SSE, transforming itself into one of Britain’s leading energy companies overnight. Despite its growth, Ovo has faced challenges, including a strained relationship with Ofgem and customer complaints about overcharging.
David Buttress now leads the company as its chief executive, following his role as Boris Johnson’s cost-of-living tsar and his tenure as CEO of Just Eat. The prospective sale of a stake in Kaluza and the injection of funds by potential investors are part of Ovo’s strategy to strengthen its position in the energy market.
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