Energy consultant in £10m MBO disposal of SME division

Inspired Energy, the Preston-based energy procurement group, has disposed of its SME business in a management buyout valued at £10.5m.

The division comprises Energisave Online Limited, KwH Consulting Limited and Simply Business Energy Limited.

It said the disposal will enable the group to focus exclusively on its strategy of providing expert assurance and utility cost optimisation services to corporate energy consumers.

The SME division provides price comparison and contract arrangement services for SME consumers, which the board considers to be a non-core activity, contributing seven per cent of group revenues during the first half of 2020.

For the year ending December 31, 2019, the SME division generated revenues of £5.6m and adjusted EBITDA of £1.9m, with net assets of £7.9m.

During 2020, the financial performance of the division has been significantly impacted by the ongoing pandemic, experiencing a reduction in demand for energy supplier switching services.

For the six month period ending June 30, 2020, the SME Division generated revenues of £1.9m, compared with £2.88m the previous year, and adjusted EBITDA of £0.5m, against £0.97 in 2019, after utilising the benefit of the Government Coronavirus Job Retention Scheme (CJRS) extensively.

The downturn in performance continued during the second half, with the Division being loss making in the period, despite the ongoing utilisation of the CJRS.

Under the terms of the MBO, to maintain full market coverage, where the group has a need to provide price comparison services to SME consumers, the division will become a supplier to the group to enable a continuation of that service provision.

The group also issued an update today which revealed that trading in its core corporate assurance service business remains robust and ahead of management expectations for the full year, despite the disruption in the fourth quarter.

The average energy consumption reduction by customers for the April to December period is expected to be around 18%, well ahead of the 25% reduction modelled in the board’s COVID downside case.

The optimisation services businesses, which are project-based and typically require access to customer sites, had been disrupted from April to September as a result of pandemic restrictions and some project deferrals.

While in October, the businesses did experience a partial recovery, as expected, the lockdowns during November have, again, restricted site access and caused the deferral of some additional projects into fiscal year 2021.

As a result of the short term disruption in optimisation services, in part offset by the continued resilient performance in assurance services, the board now expects the group’s continuing operations to report 2020 underlying EBITDA approximately £1.2m below current expectations.

Chief executive, Mark Dickinson, said: “The disposal of the SME division represents an important milestone in the strategic direction of Inspired Energy.

“Unlike the corporate division, where assurance services have performed better than our COVID-sensitised model, and optimisation services where FY2020 performance is impacted by deferrals to project delivery, but is expected to recover in FY2021, the SME division has proved less resilient to the pandemic.

“This transaction allows the group to focus solely on our core service offering to corporate energy consumers with a business that is more resilient to the COVID pandemic in FY2021.”

He added: “Having taken the decision to divest the SME division we are delighted to have agreed the sale with Andrew Nuttall, who has driven the performance of the division since formation.

“The board believes a sale of the SME division by MBO is the optimal route as it enables the group to realise value, maintain continuity of service delivery to the customer base and enable Inspired Energy to maintain full market coverage. We wish the team every success for the future.

“Whilst the financial performance of the group for FY2020 is disappointing, it is a consequence of factors outside of the group’s control.

“The board is pleased with the continued outperformance of the group’s core corporate assurance service lines and believes that optimisation services will regain strong momentum once restrictions on movement are lifted.

“The board continues to believe there is a strong and growing demand for optimisation services as ESG becomes a higher priority for corporates.”