US investment halts sale of Flow Energy

Flow Group to raise £29m as it seeks to create 'viable challenger' to the big six

Flow Group has halted the sale of its supply arm Flow Energy after a US investment firm offered to provide funding to help turn the business into a “viable challenger” to the major retailers.

The group has unveiled plans to raise a total of up to £29 million through loans and share sales as it seeks to quadruple the number of gas and electricity customers it supplies to more than one million.  

The move marks a major turnaround since Flow Group announced in February that it would “actively pursue” the sale of Flow Energy. This, it said, would allow the group to focus on rolling out the micro combined heat and power (micro-CHP) boiler developed by Flow Products to European markets. Earlier this month Flow Group said it was preparing a fundraising initiative as an alternative to the sale.

In an update to investors, the group has now revealed that the course change was prompted by talks with US investment firm Palm Ventures, which offered to make a “significant” investment in Flow Energy to provide it with “sufficient resources to fund its projected rapid growth”.

“Further investment into Flow Energy could allow it to grow to become a leading mid-tier energy supplier with over one million customer fuel accounts in the near to medium term,” the statement said.

“The directors estimate that one million customer fuel accounts would generate circa £500 million of annual revenues and a business of this size would, the directors believe, make Flow Energy a viable challenger to the big six suppliers.”

Flow Group said the Conservative party’s pre-election pledge to impose a price cap on standard variable tariffs may create an opportunity for Flow Energy as it “mainly competes on fixed rate tariffs”. It claimed the supplier is in a stronger position than many of its smaller rivals which “lack the necessary resources to hedge their energy trading positions and therefore cannot protect themselves against wholesale market volatility”.

As part of the growth plan, Flow Group will issue £15.5 million of unsecured loan notes to Palm Ventures and Lombard Odier Investment Managers. The companies have also respectively agreed to buy £0.9 million and £0.7 million of new shares in the group as part of a wider share issuance valued at £9.5 million.  

A further £4 million of new shares will also be offered to existing shareholders. Those which are not sold will be made available to small investors via the online platform Primary Bid. The proceeds from the loans and share sales could reach up to £29 million.

The group also announced that Flow Products will focus exclusively on commercialising its residential micro-CHP boilers in France, Germany, Italy and Belgium after securing an agreement to terminate its contract with its current manufacturing partner Jabil at a cost of £4 million. The cost of exiting the contract had previously been estimated at £10 million.