The energy supplier Ovo is plotting the sale of a stake in its software arm at a ‘unicorn’ valuation as part of efforts to strengthen the balance sheet of Britain’s fourth-largest residential gas and electricity group.
Sky News has learnt that Ovo, which has just under four million retail customers, has appointed Arma Partners, the investment bank, to explore options for Kaluza.
It replicates a move by larger rival Octopus Energy – revealed by Sky News – to hire advisers to work on a demerger of its Kraken software arm at a potential valuation of well over $10bn (£7.4bn).
Kaluza, which describes itself as an energy intelligence platform and this week announced a licensing partnership with the French-based energy group Engie, is 80%-owned by Ovo.
The remaining 20% is owned by AGL, an Australian energy company which bought a stake last year in a deal valuing Kaluza at $500m (£395m).
Industry sources said that Ovo was likely to seek a valuation for Kaluza in any new transaction of well over $1bn, although they added that there were questions about the software business’s path to sustainable profitability and its pipeline of new customers.
One analyst suggested that Kaluza’s majority-owner could pitch a valuation for Kaluza – run by chief executive Melissa Gander – of as much as $2.5bn based on annual recurring revenue (ARR).
Kaluza recently bought Beige Technologies, an Australian energy software specialist, in order to strengthen its presence in the Asia-Pacific region.
The prospective Kaluza stake sale comes amid a wider effort by Ovo to bolster its financial position.
Rothschild, the investment bank, has been orchestrating talks with potential investors about a plan to inject in the region of £300m into the company.
At one point, this is understood to have included discussions with Iberdrola, the owner of rival supplier Scottish Power.
Centrica, the owner of British Gas, may also have expressed an interest in examining a deal, according to banking sources.
A deal with another third party is said to be likely before the end of the year.
On Friday, Sky News revealed that the company – like Octopus Energy – had so far failed to meet targets imposed as part of a new capital adequacy regime overseen by Ofgem, the industry regulator.
A spokesperson for Ovo said it had “taken proactive measures to align with Ofgem’s new capital rules, working constructively to meet the requirements.”
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Ovo recently named Dame Jayne-Anne Gadhia, the former boss of Virgin Money, as the independent chair of its retail arm.
Founded by Stephen Fitzpatrick, the entrepreneur who now owns London’s Kensington Roof Gardens, Ovo’s existing shareholders include the private equity firm Mayfair Equity Partners, Morgan Stanley Investment Management and Mitsubishi Corporation, the Japanese conglomerate.
Under Mr Fitzpatrick, who launched Ovo in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established players.
Ovo’s transformational moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain’s leading energy companies.
Its growth has not been without difficulties, however, particularly in relation to its challenged relationship with Ofgem and a torrent of customer complaints about overcharging.
The group is now run by David Buttress, who was briefly Boris Johnson’s cost-of-living tsar after leaving the top job at Just Eat, as its chief executive.
Kaluza declined to comment on the appointment of Arma Partners.
