Octopus Energy has agreed to sell a stake in its Kraken software arm, in a move that would value the division at $8.65bn (£6.4bn) and could open the way for a stock market flotation.
The technology, which it already licenses to some rival suppliers, has been vital to the energy company’s success, making it easier to manage customer billing, smart meters, electric vehicle charging and home batteries to make using renewable power cheaper.
Octopus said new investors, including the asset manager Fidelity International and the Ontario Teachers’ Pension Plan Board, had joined existing shareholders to acquire a $1bn stake in the business.
The stake sale, which leaves Octopus with a 13.7% stake in Kraken, comes after Octopus announced in September that it was planning to spin out the division as a stand-alone company.
The Octopus founder, Greg Jackson, said in a statement: “Kraken is in a class of its own, in terms of technology, capability, and scale. As an independent company with world-class backers and outstanding leadership, it will be free to grow even faster and is set to be a true UK-founded success story.”
Octopus is Britain’s largest household energy supplier, having taken the crown in January from British Gas, which held the position for nearly four decades after its privatisation under Margaret Thatcher.
Founded by Jackson in 2015, Octopus grew out of a government push to open the market beyond the big six energy companies. Kraken has allowed it to offer tariffs that take advantage of real-time electricity price fluctuations to lower bills.
Jackson is an adviser to the UK government, after joining the Cabinet Office board in August. His plan to split the national energy market into regional zones, which would have meant users in different areas paying different rates for their electricity, was ruled out by ministers earlier this year.
The company has licensed Kraken for use by other energy suppliers including E.ON, EDF and Good Energy in the UK. The software is also used in other countries by energy suppliers including Tokyo Gas in Japan and Origin Energy in Australia.
Jackson will maintain a 4.7% stake in Octopus and an undisclosed stake in Kraken. He said he planned to increase his holding in Octopus and reduce his share in Kraken.
He also hinted that the cash injection from the Kraken investment could fuel new takeovers. Octopus has already snapped up 40 businesses in the past decade. “Octopus has got a £1.5bn balance sheet even before the Kraken deal,” he said. “The Kraken deal doubles that … Octopus sits here with a great war chest.”
Jackson is also looking to develop new lucrative spin-offs. “We’ve just let our first unicorn out of the stable; there’s quite a few more in the wings,” he said. “Energy globally is a $3tn sector, and it creates the opportunity for us to create incredible businesses.”
He told BBC Radio 4’s Today programme that a stock market listing for Kraken could be on the horizon, and that the London Stock Exchange was a top contender for the UK-headquartered business’s initial public offering.
“There’s every chance that the Kraken may list at some point in the medium term. And, look, I think for large tech companies like Kraken, it’s going to be between London and the US. Personally, I really hope it’s London,” Jackson said.
“The one thing about Kraken is we’ve got this global investor base. It’s a global business. And so really the stock exchanges have got to kind of show why they are the right one for a business like this.”
Octopus also revealed on Tuesday that it had swung to a pre-tax loss of £260m for the 12 months to April, having reported an £77.6m profit a year earlier. That was despite a 10% rise in group revenue to £13.7bn.
The company said the loss was the result of an “exceptionally warm spring” that reduced gas and electricity consumption, and “strategic investments in people, brand and operations”, which pushed up costs. That included a hiring spree during which Octopus boosted its headcount by nearly 4,000. It now employs about 10,000 staff.
