US private equity giant KKR has placed a more than £1 billion bet that it can grow one of the UK’s biggest smart meter companies with new injections of money.
Smart Metering Systems (SMS) said on Thursday that it would recommend a takeover bid from the investor, which values the London-listed firm around 40% higher than its value earlier this week.
The £1.3 billion deal will see KKR buy a company which installs smart meters, batteries, electric car charging points and much more besides. It employs about 1,500 people and is headquartered in Glasgow.
In a note to SMS shareholders on Thursday morning, the companies argued that being taken private could allow the business to break free of constraints of a public exchange.
There are major opportunities for the business, KKR said, but “the capital that would be required to maximise the return on those opportunities is substantial”.
As the UK aims to become a more climate-friendly country it will not just need ways of generating low carbon electricity, such as wind or solar farms.
One of the limitations of renewables is that the sun does not always shine and the wind does not always blow.
Experts say that some of this downside can be offset by the kinds of systems that SMS helps install. By using energy smarter, it can take some of the pressure off the grid.
This could mean using more when the wind is blowing and a little less when it is still.
Founded in 1995, SMS operates largely behind the scenes and does not directly interact with many people. It holds major contracts, perhaps most notably with British Gas for more than a decade.
Between 2018 and 2020 it changed the lightbulbs in 388 Travelodge sites to more energy-efficient alternatives. This, and other systems like lighting sensors, saved the hotel chain nearly £3 million a year off its energy bills and reduced its carbon emissions by 4,000 tonnes per year.
Commenting on the acquisition, SMS chief executive officer Tim Mortlock said: “KKR’s offer recognises the strength and resilience of our model, and will ensure SMS has the necessary capital to accelerate and unlock its full growth potential.
“The offer price represents a significant premium to the current share price and allows shareholders to realise immediate and attractive value for their shareholding.”
KKR partner Tara Davies said: “SMS has a strong asset base and a clear strategy across different business lines which are critical enablers of the UK’s net zero goals, and we share the team’s vision of putting SMS at the heart of the UK’s energy transition.
“Achieving this growth opportunity requires significant capital of a scale, flexibility and certainty which is best facilitated in the private markets.
“KKR is a major investor in UK infrastructure and behind the energy transition, and we will bring our expertise and operational resources to bear in supporting SMS to invest at the level required and successfully scale its business over the long term.”