On the acquisition trail

Verastar’s acquisition of Scottish water retailer Aimera is the latest in a long line of utility consolidation deals, and it is unlikely to be the last.

Verastar is a little-known company trading under many different brands in the telecoms, water, energy and broadband space, and it is fast gaining market share in the utilities world.

The multi-service provider was founded in 1998, with the promise that it would focus on small businesses, and recently it has started to make waves in the non-household water market.

The company supplies electricity, gas, water, fixed and mobile telecommunications, broadband and fibre connectivity and insurance services, to an estimated 10 per cent of all the UK’s small businesses. And it has just announced the purchase of Scottish water retailer Aimera, making it the largest challenger in Scotland and strengthening its credentials as it aims to take market share across the UK.

Recent confirmation of Verastar’s acquisition of Aimera is yet another example of the ongoing consolidation process in the utilities sector.

Utilities analyst Nigel Hawkins says that in supplying such services “size matters”, and that this is a principle to which Verastar, in making its eighth transaction in just 18 months, is “clearly wedded”.

“Many companies will currently be holding discussions with one another about the benefits or otherwise of merging,” he says.

Several suppliers, like Verastar, focus on the small- and medium-sized enterprise (SME) market, where they manage their SME clients’ utility requirements, especially in terms of procurement – an obvious example being Utilitywise, which has built up a strong SME-orientated business. Despite a profit warning last June, Utilitywise has a market value of £50 million.

But many small entrants focus on the retail market, where the supply criteria are different – and where margins are under real pressure as the ill-fated GB Energy discovered.

A leading supplier of cross-utility services, outside the big six, is Telecom Plus, with annual revenues of £740 million; through its Utility Warehouse brand, it boasts more than 300,000 electricity, 260,000 gas and 120,000 telecoms customers.

In the very competitive energy sub-sector, many small players vie for market share, including First Utility, Ovo Energy and Good Energy.

The latter has a market capitalisation of £46 million, and is currently embroiled in a major battle with Dale Vince – the founder of Ecotricity, who bought a significant minority share in its rival in October last year. On the water front, further consolidation initiatives are likely as partial market liberalisation takes root.

“Forecasting the next utility deal is problematic but deals will assuredly materialise,” says Hawkins. “It will be the decisions of a few key individuals as to which transaction follows in the footsteps of Verastar’s latest acquisition.”

Verastar itself isn’t showing any signs of slowing on its insatiable quest for market share. On the day the deal was announced, strategy and business development director Piotr Nowosad said Verastar has “led the way” in consolidating the Scottish water market, “bringing efficiency and driving down costs for SME businesses”. “We have already begun to replicate that model and shake up the market in England following de-regulation in April 2017,” he said. “We continue to be active in seeking to acquire companies and customer books across a broad product portfolio including payments, insurance, telecoms, energy and water.”

Key Verastar acquisitions

Aimera

Verastar bought independent Scottish water retailer Aimera on 21 July, bringing its UK customer-base to an estimated 10 per cent of UK businesses. The company said the acquisition would increase its water customer volumes and provide access to new sales channels to support future organic growth.

Ovo Energy’s commercial customers

On 18 October 2016, Ovo Energy sold its business customer base to Verastar for an undisclosed sum. The energy retailer previously provided one business electricity fixed-price plan – Better Energy – which was made up of 33 per cent renewable electricity as standard. It did not supply gas or offer a 100 per cent green energy plan to its commercial customers. The acquisition bolstered Verastar’s customer-base to 9 per cent of small businesses in the UK.

Clear Business Water

Clear Business Water, was among the first to be granted a water supply and sewerage licence for the English market by Ofwat earlier this month. It was bought by Verastar in 2013, and has been providing business water services in Scotland since then. It now has a Scottish market share of around 20 per cent.

Other notable buys