As individuals in the U.K. It looks like Christmas has come early for shareholders of a smart meter business to prepare themselves for a year of great uncertainty.
Earlier this month, the Calisen directors confirmed they are recommending a bid from a group of investors for the company that values the company at £ 1.4 billion.
On the day of the announcement – two weeks prior to Christmas – the cash bid of 261 pence per share for Manchester-based Calisen sent the company’s stock up 25 percent to 257.6 pence.
For the 240 pence investors paid for Calisen stock when the company went public in February, the bid reflects a nearly 10 percent premium. That month, along with Glasgow-based Smart Metering Systems, the company went public.
The Calisen bid would allow investors to make significant returns on assets they have kept for a period of just 10 months, when the financial markets were reeling from the coronavirus crisis.
The proposed acquisition values the 73 percent stake of US private equity heavyweight KKR in Calisen at about £ 1 billion.
It is further proof of how much wealth has been created in the wake of the official move to equip all UK homes and small businesses with smart meters for some investors.
The hypothesis is that, by supplying customers with near-real-time information about their energy use, they can play an important role in the search for net zero.
Since a rocket scientist may not need to work out that the energy usage of a household goes up when items such as electric showers and iron are in use or central heating is on full blast, some individuals may be suspicious about how useful smart meters can offer insights.
But a number of advanced investors have decided that companies with smart meters have very enticing prospects.
Funds operated by U.S. investment giant Blackrock and investment firm Goldman Sachs made the offer for Calisen. The bidding consortium also includes an affiliate of Abu Dhabi’s state-owned Mubadala Investment Firm.
The bid comes shortly after the initial public offering by Calisen, which seemed to encourage KKR to gain a return on its investment in the company.
At £ 1.3 billion, the IPO priced Calisen. In 2016, KKR bought the company at a value of around £ 1 billion from Infracapital.
The announcement of Calisen’s recommended bid sets out the commercial justification for investing in a smart meter business. These lease meters and related services are offered to energy firms who are obligated to supply their customers with them. In the end, the expense is charged by customers through their bills.
Across the country, millions of meters have been built. To achieve the government’s target, millions more must be built by June 30, 2025. 2020 was the initial deadline.
The bid announcement underlines the smart meter business’ long-term contractual existence.
It states that this “contractual and regulatory protections and underpinned by strong contractual agreements with utility customers,” with “results in strong defensive characteristics.”
Furthermore, it says,’ Bidco expects that Calisen will continue to benefit from income protection against the possibility of premature removal of the meter, either by bilateral contracts or because of regulatory, commercial and practical reasons for the continued use of the current meter by a new supplier.’
Calisen is a very profitable business now. The company made an operating profit of £ 17 million on sales of £ 117 million in the six months to June 30th.
As of Sept. 30, the company’s portfolio included 5.7 million smart meters. Based on contracts won and those for which the company has been given preferred bidder status, the number is projected to grow to 13.2 million by 2025.
In the regions where it operates, Calisen hires approximately 1,750 people and provides valuable engineering employment.
With smart meter adoption rates well below those hoped for, however, one has to question if it really makes sense to have a system that enables private operators to make so much money.
It should be recalled that investors have made large gains in other smart meter businesses.
For the current fiscal year, Smart Metering Systems increased its annual dividend to