Deal in Focus: NorthEdge acquires Utiligroup from listed BGlobal

In the wake of the financial crash, GPs had been expecting to see a flurry of corporate divestments as an important source of dealflow. However, on the whole, corporates remained fairly static when it came to divesting non-core divisions, most likely because of unappealing valuations.

At the end of May, NorthEdge Capital agreed to acquire a majority stake in Utiligroup, as part of the £16.1m management buyout from LSE-listed BGlobal. The Lancashire-based company, which provides data management software to the energy sector, counts 29 active UK energy suppliers on its books, including OVO Energy and Co-Operative Energy.

According to NorthEdge investment executive George Potts, the deal highlighted different challenges to those presented when buying from private owners. "There's less direct access to the individuals and decision-making is handled by a group – the board – rather than a single point of contact." The effect, Potts explains, is a slower decision-making process resulting in part from a greater number of opinions.

The ensuing gap between exchange and completion presented the greatest challenge for NorthEdge, says Potts: "We signed exclusivity on 9 April and exchanged on 30 May, which would have been exchange and completion were it not for the PLC process that has to follow." BGlobal announced the completion of the deal on 20 June.

"It is unusual that you are dealing with a vendor that doesn't have delegated authority to say ‘yes' or ‘no'," Potts says. "Getting comfortable that PLC was supportive of the deal; that the deal was fair; that shareholders were therefore likely to approve it and we wouldn't be at risk was therefore very important."

Local benefits
Key to obtaining shareholder approval for the deal, was the endorsement by Utiligroup's board. "Given our investment committee is up here [North of England], near the business, near management, we were able to effectively communicate our deliverability and the attractiveness of our offer to the board," says Potts, "which ultimately led to us gaining exclusivity."

Furthermore, NorthEdge had received an indication that Martin Evans, who owns 10% of BGlobal's shares, would vote in favour of the buyout, taking a seat on the board following completion.

At the time of exchange, NorthEdge had secured 20% in irrevocables. The GP was provided with further reassurance when monitoring the effect of the announcement on Utiligroup's share price. Potts explains: "We were pretty confident that shareholders would look at that and think 'we've achieved good value here'. That gave us a lot of comfort."

From first point of contact, the agreement took almost three months to put together. A month before signing exclusivity, NorthEdge was approached by Seneca Corporate Finance, which had been working with Utiligroup management. "We were very impressed after our first meeting with the principals at Utiligroup and worked to build a relationship from there," says Potts. "KPMG was simultaneously running a competitive auction process on behalf of BGlobal, so we were pretty well prepared when the time came to participate in that auction process."

Utiligroup will now focus on further developing software and pricing structures for its fastest growing clients. Meanwhile, it is developing software in preparation for the arrival of DCC, a UK government-backed initiative for the rollout of 53 million smart electricity and gas meters.

Potts believes that UK consumer attitudes to the energy market further cement the growth potential for the company: "The whole anti-big six feeling is driving switching, which in turn drives growth of the data management software that UtiliGroup's clients use."

Regardless of the challenges of buying from a listed parent, Potts affirms the GP has not experienced anything that would deter it from pursuing similar deals in future. While the private equity industry has not yet seen the flurry of corporate divestment it has long anticipated, current valuations could see a pick-up in dealflow levels.

Advisers
Equity – Seneca Partners, Gordon Lane, Andrew Stubbs (Corporate finance); DWF, Jonathan Robinson, Vicky Ross (Legal); BDO, Chris Heatlie, Sarah Cumming, Matthew Molyneux (Financial due diligence); Credo, Simon Bones, Alex Foulds (Commercial due diligence).
Vendor – KPMG, Jonathan Boyers, Alex Hartley (Corporate finance).
Management – Fieldfisher, Matthew Fleetwood, Mo Wang (Legal).

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