EMEA: UK gas connection business set to come to market

27 February 2018 - 12:00 am UTC

UK gas connection operator Indigo Pipelines is exploring a possible sale, a transaction likely to attract infrastructure investors seeking to tap growing demand for utility connections as the government ramps up housebuilding.

Sources told Inframation that Indigo is in the process of appointing advisors for a sale process. One of the sources said it plans to appoint financial and technical advisors by May.  

Indigo did not respond to a request for comment.

Indigo, which was established by the UK energy company SSE in 1992, works with property developers and housebuilders to provide gas connections to new buildings. It is one of a group of companies seeking to provide gas and other utility connections to new homes as the government accelerates housebuilding. 

The government announced in December that it plans to build 300,000 new homes a year in England, up from current levels of around 220,000.

Indigo Pipelines was acquired by the Environmental Capital Fund, an infrastructure fund managed by Scottish Equity Partners LLP (SEP), in 2014 for GBP 52.7m. It currently provides gas connections for around 170,000 residential and commercial properties across the UK, up from around 150,000 less than two years ago.

It reported a pretax profit of GBP 4m for the year ended 31 March 2017, up from GBP 3.6m the previous year on turnover up to GBP 14.6m from GBP12.4m. Aside from Indigo Pipelines, SEP has investments in Hamsin Wind, an installer of single onshore wind turbines, and combined heat and power project developer Ardor Energy.

Indigo is one of eight operational independent gas transporters (IGTs) that are currently regulated by the energy regulator Ofgem. Others include Energetics Gas Ltd, whose majority shareholder is Macquarie Lending, and ESP Utilities Group, which was acquired by 3i Group from EISER Global Infrastructure Fund last year.

Ofgem estimates the number of customers currently connected to IGT networks is a million. New housing and commercial developments form the largest share of the IGT market, according to Ofgem.

Last month utility services company Energy Assets Group (EAG), which was acquired by Hermes Investment Management’s infrastructure team and Alinda Capital Partners in 2016, launched Energy Assets Pipelines (EAP), which is also an IGT regulated by Ofgem. It launched it in order to take advantage of growing demand for “last mile” connections between new homes and gas networks.

Speaking at the launch of EAP, EAG chief executive Colin Lynch said EAP will benefit from the “biggest housebuilding programme for generations.”

While Indigo Pipelines is focused on gas connections, some of the other seven IGTs are also providing other connections for electricity and water.  One of them, GTC, offers connections for gas, electricity, telecoms fibre, water and wastewater as well as for district energy, a means of using hot and cold water pipes to heat and cool buildings.

Others, such as EAP and Energetics are part of larger groups that also offer connections for utilities other than gas. One source said that Indigo could be of interest to buyers seeking to combine its gas connections with connections for electricity and other utilities. 

Companies that provide “last mile” connections for utilities other than gas currently include electricity connection provider Utility Assets Ltd and its sister company, district heating-focused Q Heat Ltd, and Leep Utilities, an owner of electricity, water and district heating utility assets. Leep Utilities is part of infrastructure investor Ancala’s portfolio.

 

Indigo