Infra funds among smart meter portfolio finalists

03 September 2019 - 12:00 am UTC

Arcus Infrastructure Partners and UBS Asset Management are among infrastructure fund managers preparing final offers for Foresight Group’s UK smart meter business, sources said.


Sources close to the process said that Foresight Metering, which is being advised by RBC, received initial offers in August from UK smart meter companies and infrastructure funds for all shares in the business.


The seller, which owns around 350,000 smart meters, is preparing to launch the second round of the sale process, and has set a deadline of mid-October for final offers, sources added.


Multiple sources said that Arcus and UBS have been shortlisted by the seller and are preparing final offers, while MapleCo, a smart metering company owned by Borealis, OTPP and SSE, submitted an initial offer but was not shortlisted.


MapleCo, Foresight Metering, Arcus and UBS declined to comment.


If successful, Arcus would buy the company via its second European infrastructure fund, which has a hard cap target of EUR 1.5bn. The fund in May 2018 acquired all shares in Swiss fibre-to-the-home (FTTH) company Swiss4Net and a 93% stake in Dutch FTTH specialist E-Fiber. UBS is fundraising for its third USD 1bn (GBP 767m) infrastructure equity fund.


Infrastructure funds are attracted to the smart meter sector largely due to its enormous growth potential. 


So far around 16.5 million smart meters have been installed across Britain, while the UK government wants all of the 26 million households in the country to have the device by the end of next year.


The installation process has been delayed due to technological issues surrounding the first generation of smart meters, SMETS 1, and a slower than expected rollout of the more advanced SMETS 2. 


Nonetheless, Moody’s expects the smart meter installation programme to be completed by the mid-2020s.


Sellers of smart meter companies have demanded high prices in the recent past on the back of the sector’s growth potential. KKR Infrastructure paid a high mid-teen EBITDA multiple for Infracapital’s Calvin Capital in 2017.


But BUUK Infrastructure No 2, which is owned by Brookfield infrastructure fund management, this summer called off its sale of its smart meter business after bidders failed to match its price expectations.


Smart meters provide an annual rental income that is indexed to inflation for the life of the asset, typically between 10 and 15 years. But some investors are cautious about entering the market due to its risks. 


Companies compete to become an energy supplier’s preferred Smart Meter Asset Provider (MAP). But competition to win these contracts is becoming increasingly stiff. 


Also, MAPs face losing contracts with individual homeowners if they switch energy suppliers. MAPs are also liable if meters fail once a manufacturer’s warranty expires, and also if its battery needs replacing.


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