Octopus Energy to Spin Off $8.65bn Tech Arm Kraken
Octopus Energy is making headlines with its plan to spin off Kraken Technologies, marking a significant evolution for the tech arm valued at an impressive $8.65 billion (£6.4 billion). Here’s what you need to know about this pivotal move:
– Valuation and Stake Sale: The spin-off follows a $1 billion investment from a consortium led by New York’s D1 Capital Partners, which has positioned Kraken for a standalone future.
– Future Listing Opportunities: Octopus founder and CEO Greg Jackson indicated there is “every chance” Kraken will pursue a stock market flotation “in the medium term,” with potential locations being London or the US.
– Innovative Technology: Kraken leverages artificial intelligence to automate customer service and billing processes for energy providers. The platform optimizes energy usage, incentivizing customers to reduce consumption during peak periods.
– Clientele Growth: Initially designed for Octopus, Kraken now boasts a diverse portfolio of utility clients, including EDF, E.On Next, TalkTalk, and National Grid US, servicing approximately 70 million residential and business accounts worldwide.
– Investment Impact: The majority of the $1 billion raised will directly support Octopus’s expansion, while Kraken will receive the remainder. Jackson noted that Kraken will operate independently of Octopus “within a few months.”
– Investor Confidence: Alongside D1 Capital Partners, additional investors include Fidelity International and a unit of Ontario Teachers’ Pension Plan, with Octopus retaining a 13.7% stake in Kraken.
– CEO Insights: Amir Orad, Kraken’s CEO, emphasized that the spinoff would allow the company to focus more sharply on its growth, addressing challenges faced when competing with other firms in the energy sector.
– Listing Considerations: Jackson highlighted that the global investor interest in Kraken will influence the decision for its eventual stock market listing. “One thing about Kraken is we’ve got this global investor base… stock exchanges need to prove why they are the best fit,” he said.
– Job Creation: Octopus Energy has generated 12,000 jobs in the UK, including 1,500 attributed to Kraken. The headquarters will remain in the UK, and Jackson expressed a desire for a London listing if it aligns with securing optimal investor support.
– Growth Amid Challenges: This demerger occurs amid Octopus Energy’s rapid growth, becoming the UK’s largest energy supplier with 7.7 million households served. However, the company noted it was one of three energy retailers that did not meet Ofgem’s financial resilience targets this year.
– Financial Stability: The cash injection from this deal is expected to nearly double Octopus Energy Group’s already robust balance sheet. Despite reporting a £260 million loss before tax for the fiscal year ending April—down from a £78 million profit the previous year—sales increased by 10% to £13.7 billion.
– Weather-Related Impact: Octopus attributed part of its financial difficulties to lower energy demand linked to unusually warm weather—record-breaking since 1885—which caused a 25% drop in gas usage in April and a 11% decline in March.
In summary, Octopus Energy’s strategic decision to spin off Kraken Technologies not only indicates a bright future for both entities but also positions Kraken to harness its innovative technology more effectively in a competitive marketplace. The anticipated stock market listing could reshape investment opportunities while invigorating the energy sector.