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British Gas smart meter installer sold in £1.3bn private equity deal

Smart Meter
Smart Meter

One of Britain’s biggest smart metering businesses has become the latest company to quit the London stock market after agreeing a £1.3bn private equity takeover.

US private equity giant Kohlberg Kravis Roberts (KKR) has swooped on Glasgow-based Smart Metering Systems (SMS), which has a long-running contract to install smart meters for British Gas.

KKR has offered shareholders 955 pence per share, representing a 40pc premium to Wednesday’s closing share price.

SMS chief Tim Mortlock said the 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 deal is likely to fuel criticism that investors in the London Stock Exchange are undervaluing companies.

Several publicly listed British companies have been sold at large premiums this year, suggesting they are worth more than the stock market values them at. Mars agreed to buy Hotel Chocolat at a premium of almost 170pc last month, while private equity group EQT agreed to buy veterinary medicine group Dechra for a 44pc premium over summer.

Last week, stockbroker Panmure Gordon warned that the British stock market was “structurally broken”, with companies valued almost a fifth lower than internationally listed rivals.

KKR, which has over $170bn (£135bn) of private equity investments, said SMS was a good way to capitalise on the UK’s net zero goals.

SMS owns and operates smart meters in homes, earning a recurring fee from energy suppliers for devices once they are installed. It has a 14pc share of Britain’s smart meter market, with more than 2m devices installed.

Smart meters connect with energy suppliers directly, sending live gas and electricity usage. The devices remove the need for manual meter reading.

First introduced in 2009, their early rollout was marred by difficulties since the first models were sometimes tied to particular suppliers and switching to a new energy company removed their connectivity, rendering them “dumb”.

Customers have also been cautious amid concerns about handing more power to energy companies.

SMS chief executive Tim Mortlock told The Telegraph in September that attitudes were changing because of the energy crisis.

He said: “The meters not only give consumers visibility over their energy usage but also let them take part in schemes like last winter’s demand flexibility scheme where people with a smart meter could be paid to use less energy at particular times of the day.”

SMS founder Steve Timoney is in line for £51m from the sale. Mr Timoney’s other interests include the Caledonia Gladiators basketball team and a five-star hotel. Mr Timoney founded SMS in 1995.

Former chief Alan Foy is also set for a windfall from the deal. His 4.5pc stake is worth £57m.

As well as smart meters, SMS builds battery storage systems and electric vehicle chargers.

Its battery storage business, which buys electricity when it is cheap and then sells it when wind and solar energy are less plentiful, is an area of planned growth.

Five storage sites are in operation with another 10 planned totalling about 860 megawatts – roughly equivalent to a small power station.

The AIM-listed energy business posted pre-tax profits of £11.2m for the first half of the year, up from £10.3m for the same period in 2022. It employs about 1,500 people.

Tara Davies, a partner at KKR, 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.”

Mr Mortlock said on Thursday: “The offer price represents a significant premium to the current share price and allows shareholders to realise immediate and attractive value for their shareholding.”