OVO Group, the UK’s fourth-largest supplier of domestic energy, is hiring bankers from Rothschild to help assess its strategic and financing options, Sky News has learned.
Britain’s fourth-largest domestic energy supplier is lining up bankers to explore options including bringing in a new investor or a sale, 15 years after its launch in a bid to challenge the sector’s oligopoly.
Sky News has learned that OVO Group, founded by Stephen Fitzpatrick, is set to hire Rothschild to help with a strategic review of the business.
City sources said this weekend that several options are being considered during the process, which is expected to take several months.
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This will probably involve a refinancing (discussions are already underway regarding OVO’s existing loans), but also the issuance of new shares to potential investors or a partial or complete sale by some of the company’s shareholders.
Insiders believe a full sale of the company is unlikely at this time, but it is expected to be explored as part of the strategic review.
OVO, which has around four million customers, is behind Centrica, the owner of British Gas, Octopus Energy and E.ON Next in the rankings of the UK’s largest gas and electricity suppliers, according to market share data from the industry regulator Ofgem.
Under the leadership of Mr. Fitzpatrick, who founded OVO in 2009, the company positioned itself as a challenging brand providing superior service to the industry’s established players.
OVO’s moment of transformation came in 2020, when it acquired the retail supply arm of SSE. The company quickly transformed into one of the UK’s largest energy companies.
The growth has not been without problems, with insiders pointing to the difficult relationship with Ofgem and the flood of customer complaints about excessive tariffs.
In recent months, OVO shareholders have reshaped the leadership team, appointing former J Sainsbury CEO Justin King as chairman.
In May, Mr King recruited short-lived Just Eat boss David Buttress Boris Johnsons cost-of-living czar, as the energy group’s new CEO.
Mr Buttress replaced Raman Bhatia, who left to join Starling Bank.
He is expected to focus on improving the company’s customer service and exploring ways to further diversify its products and services.
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Key to OVO’s valuation will be the growth of its Kaluza technology platform, which was set up to license its software to other energy suppliers, providing customers with smart charging for electric vehicles and heat pumps.
OVO recently announced that AGL Energy, one of Australia’s largest energy suppliers, had purchased a 20% stake in Kaluza at a valuation of $500 million (£395 million).
Kaluza is believed to be exploring further expansion opportunities in Europe, Japan and the US.
OVO is also active in the electric vehicle charging sector under the Charge Anywhere brand, having added 34,000 public charging points across the UK.
In 2022, OVO Group made an unadjusted loss of £1.3 billion, which it attributed to a decline in the value of energy it had pre-purchased to meet future supply obligations.
Company documentation stated that this had “no financial impact” and that the value would increase as customers used the purchased energy.
Last summer the company announced a £200 million secondary share sale, with 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 believed to have a stake of more than 30%, while Mitsubishi owns around 20%.
Mr Fitzpatrick is still a major shareholder.
It was unclear this weekend which OVO investors would want to divest their holdings, though insiders acknowledged that a significant portion of the company’s shares could eventually change hands.
Like its rivals, OVO has had to contend with the impact of the price ceiling for the industry after a period of huge price spikes that caused customer bills to skyrocket.
Last month, Ofgem said the cap would fall by the annualised equivalent of £122 to £1,568 in the July to September quarter.
Other major players in the sector include EDF and Scottish Power, which is owned by Spain’s Iberdrola.
In recent months, Octopus Energy, led by Greg Jackson, has achieved a valuation of more than £7 billion by selling stakes to a number of new investors.
Centrica has a market value of £7.3 billion on the London Stock Exchange.
OVO, whose valuation for a possible major transaction was still unclear this weekend, did not want to comment.