OVO Group, the UK’s fourth-largest home energy provider, is eyeing bankers at Rothschild to help review its strategic and financial options, Sky News learns.
Britain’s fourth-biggest household energy supplier is preparing 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.
OVO Group, founded by Stephen Fitzpatrick, is close to hiring Rothschild to help with a strategic review of the business, Sky News has learned.
City sources said this weekend that a number of options will be considered during the process, which is expected to take several months.
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These are likely to include refinancing – with negotiations on OVO’s existing loans already underway – as well as the issue of new shares to potential investors or a partial or full sale by some of the company’s shareholders.
An outright sale of the business is considered unlikely by insiders at this time, but is expected to be explored as part of a strategic review.
OVO, which has around four million customers, sits behind Centrica, owner of British Gas, Octopus Energy and E.ON Next in the UK’s top gas and electricity suppliers, according to market share figures provided by Ofgem, the industry regulator.
Under the leadership of Mr Fitzpatrick, who launched OVO in 2009, the company has positioned itself as a challenger brand offering superior service to established players in the industry.
OVO’s transformational moment came in 2020 when it bought the retail supply arm of SSE, transforming it overnight into one of the UK’s leading energy companies.
Its growth has not been without its difficulties, with insiders citing a contested relationship with Ofg and a flood of customer complaints about overcharging.
In recent months, OVO’s shareholders have reshuffled its management team, bringing in former J Sainsbury chief executive Justin King as its chairman.
In May, Mr King recruited David Buttress, the former boss of Just Eat, who was short-lived Boris Johnson the cost of living of the Tsar, as the new CEO of the energy group.
Mr. Buttress replaced Raman Bhatia, who left for Starling Bank.
He is expected to focus on improving the company’s customer service performance as well as exploring ways to further diversify its products and services.
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Key to OVO’s valuation will be the growth of the Kaluza technology platform, which was set up to license software to other energy suppliers and provides customers with smart EV charging and heat pumps.
OVO recently announced that AGL Energy, one of Australia’s largest energy suppliers, has bought a 20% stake in Kaluza for $500m (£395m).
Kaluza is believed to be looking for further expansion opportunities in Europe, Japan and the US.
OVO has also entered the EV charging sector under the Charge Anywhere brand, adding 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 bought upfront to meet future supply obligations.
It said there had been “no impact on cash” in the company’s filing and that the value would increase as customers used the energy they bought.
Last summer, the company announced a £200m secondary share sale, which saw existing investors Mayfair Equity Partners and Morgan Stanley Investment Management increase their stakes in the company.
Other investors include Mitsubishi Corporation, a Japanese conglomerate.
Mayfair is believed to hold over a 30% stake, while Mitsubishi owns around 20%.
Mr Fitzpatrick also remains a significant shareholder.
It was unclear this weekend which of OVO’s investors might seek to liquidate their interests, although insiders acknowledged that a significant portion of the company’s stock could end up changing hands.
Like its competitors, OVO is struggling with impact industrial price ceiling after a period of enormous price jumps that sent customers’ bills soaring.
Last month Ofgem said the cap would fall by the annual equivalent of £122 to £1,568 in the July to September quarter.
Other big 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 crystallized a valuation of over £7 billion by selling stakes to a number of new investors.
Centrica has a London Stock Exchange market valuation of £7.3bn.
OVO, whose valuation in any larger transaction was unclear this weekend, declined to comment.