Ovo Energy is to become one of the UK’s biggest energy suppliers after agreeing to buy SSE’s home energy business in a £500m deal that breaks up the dominance of the big six energy suppliers.
Ovo will supply almost 5m households across the UK after striking a deal to take on 3.5m SSE customers and 8,000 staff to become the largest supplier behind British Gas.
Stephen Fitzpatrick, who founded Ovo in 2009, said the deal signalled “a significant moment for the energy industry” which has been dominated by six major energy suppliers since the market was deregulated in the early 1990s.
The deal marks a major milestone for the Bristol-based company, which secured a £200m investment from the Mitsubishi conglomerate earlier this year in exchange for a 20% stake in Ovo, valuing the company at £1bn.
The valuation propelled Fitzpatrick’s personal wealth to an estimated £600m.
Profile – Ovo Energy boss Stephen Fitzpatrick
Stephen Fitzpatrick, the founder of Ovo Energy, was once a disruptive challenger to the big six energy suppliers. Today, his energy upstart is valued at a billion pounds and will soon be one of the largest energy suppliers in Britain – second only to British Gas.
The Northern Irishman’s stellar ascent is put down to a canny mix of business acumen, good political timing and carefully choreographed showmanship. His company’s appeal is simpler: energy which is cheap, green and easy to buy.
Fitzpatrick, a former City trader, founded Ovo a decade ago with £350,000 with the belief that “trying to do things differently could make a real impact”. He turned to the energy industry with an antidote to the major suppliers, as mistrust in its biggest players deepened and bills were on the rise.
But it was his star-turn before numerous MP select committee inquiries into the troubled energy market around five years ago which secured his lead-role as a new breed of energy boss. His commitment to simplicity, transparency, and fairness, combined with outspoken attacks on rival energy bosses – often sitting beside him before MPs – quickly garnered headlines and a growing customer base.
The energy industry’s new posterboy is not without controversy of his own. The former JP Morgan broker’s multimillion-pound spending on property and a Formula One team raised eyebrows after his attacks on energy fat cats.
Ovo itself was accused of a cash grab. Its rivals criticised the company’s decision to charge customers for energy before they have used it, warning it put customers’ cash at risk.
In Ovo’s early days Fitzpatrick claimed a salary of £120,000 a year but withdrew over £2m from the company to buy a family home in the country in 2013, when it had barely begun making a profit.
Fitzpatrick, 41, went on to pump a reported £30m into Anglo-Russia F1 racing team Marussia through Imagination Industries, his private holding company. The team lost its place in the Constructors’ Championship in 2016, putting the brakes on Fitzpatrick’s F1 dreams.-
The Guardian understands that Ovo has also secured a debt deal with Barclays Capital, the company’s financial adviser, to help finance the deal which was double the price expected by City analysts.
After several months of talks between the two parties, Ovo agreed to fund the deal through a £100m loan agreement with SSE, and a further £400m which is covered by a mix of cash and new debt arrangements.
The deal is expected to be completed later this year or early in 2020.
SSE will then be free to turn its back on the falling profits in its energy supply business and focus on building and running renewable energy projects and energy networks.
SSE’s home energy business made just £35.3m of operating profit by in the last financial year, down from £221.8m the year before. The Perth-based company’s share price climbed by 1.5% to almost £11.85 a share after the deal was unveiled on Friday.
The Unison trade union said the deal underlined the “precarious state” of the UK’s energy companies, which are grappling with the uncertainty of Brexit while facing a government-led cap on energy bills and the threat of nationalisation under a Labour government.
Christina McAnea, Unison’s assistant general secretary, said: “Staff at SSE will understandably be concerned their jobs might go following the move. That’s why we’ll be seeking assurances that not a single post disappears.”
SSE said it will set up meetings with major trade unions and employee forums in the coming weeks to discuss plans to integrate the companies and move SSE’s 8,000 staff to Ovo.
Alistair Phillips-Davies, chief executive of SSE, said: “We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders – and this is an excellent opportunity to make that happen.”
SSE had originally hoped to spin off its energy supply business to form a new listed energy company with its struggling rival Npower. The plans fell apart late last year in what was seen in the City as an embarrassing failure for Phillips-Davies.
A City source said it was still too soon for Ovo to consider a market listing for its enlarged energy supply business, and one said it may choose to remain “fleet of foot” as a private company.
“Ovo is a hugely impressive, fast-moving company and Stephen’s vision is the driving force. This is a major opportunity for the company, and could bring huge change for the energy industry,” the source said.
