7 December 2023
RECOMMENDED CASH ACQUISITION
of
Smart Metering Systems plc (“SMS”)
by
Sienna Bidco Limited (“Bidco”)
a newly formed company wholly-owned by funds advised by Kohlberg Kravis Roberts & Co. L.P. and its affiliates
to be effected by means of a scheme of arrangement
under Part 26 of the UK Companies Act 2006
Summary
· The boards of SMS and Bidco are pleased to announce that they have reached agreement on the terms of a recommended all cash acquisition of the entire issued and to be issued ordinary share capital of SMS by Bidco. The Acquisition is to be effected by means of a scheme of arrangement under Part 26 of the Companies Act.
· Under the terms of the Acquisition, each SMS Shareholder shall be entitled to receive:
for each SMS Share 955 pence in cash
· The Acquisition Price represents an attractive premium of approximately:
o 40.4 per cent. to the Closing Price of 680 pence per SMS Share on 6 December 2023 (being the last Business Day prior to the date of this Announcement and the commencement of the Offer Period) (the “Latest Practicable Date“);
o 50.7 per cent. to the three-month Volume Weighted Average Price of 634 pence per SMS Share on the Latest Practicable Date; and
o 43.8 per cent. to the six-month Volume Weighted Average Price of 664 pence per SMS Share on the Latest Practicable Date.
· The Acquisition values the entire issued and to be issued ordinary share capital of SMS at approximately £1.3 billion on a fully diluted basis, and this implies an enterprise value of approximately £1.4 billion.
· The Acquisition values SMS at an EV / EBITDA multiple of 20.0x (calculated based on LTM Pre-exceptional EBITDA of £71 million as of June 2023).
· SMS Shareholders will be entitled to receive and retain the Second FY 2023 Dividend Instalment of 8.31875 pence per SMS Share as announced by SMS on 12 September 2023, which is expected to be paid on 25 January 2024 to those SMS Shareholders who appear on the register of members of the Company on 5 January 2024.
· If any other dividend or distribution is announced, declared, made or paid in respect of SMS Shares on or after the date of this Announcement (including the Third and Fourth FY 2023 Dividend Instalments), Bidco reserves the right to reduce the Acquisition Price by the amount of such dividend or other distribution, except where the SMS Shares are or will be acquired pursuant to the Scheme on a basis which entitles Bidco to receive such dividend or other distribution and retain it. If Bidco exercised this right or made such a reduction in respect of a dividend or other distribution, SMS Shareholders would be entitled to retain that dividend or other distribution and any reference in this Announcement to the consideration payable under the Scheme shall be deemed to be a reference to the consideration as so reduced.
Transaction overview
· All-cash acquisition of SMS by Bidco, intended to be recommended unanimously by the SMS Board.
· The offer price represents a significant premium to the current share price and allows shareholders to realise immediate and attractive value for their shareholding.
· KKR believes that SMS is a business of high quality, with a best-in-class management team and long-term, contracted and inflation-protected cashflow streams. The business has the potential to substantially contribute to and enable the energy transition. SMS represents an established smart meters platform with a growing capability in grid-scale battery storage assets and other carbon reduction activities, and is expected to play a leading role to support the UK Government’s ambition to be net zero by 2050.
· KKR believes that SMS, under private ownership, will be able to accelerate its growth and continued transition from a metering provider and grid-scale battery storage operator to a fully integrated, end-to-end energy infrastructure company which owns, installs and manages carbon reduction assets.
· The SMS Group has a large and attractive pipeline of broader opportunities including the ongoing Battery Energy Storage Systems (“BESS“) rollout, together with the development of wider carbon reduction (“CaRe“) products. The size of these opportunities and the capital that would be required to maximise the return on those opportunities is substantial. The SMS Group may not be able to fully capitalise on these opportunities with internally-generated cash flows, additional debt facilities or asset recycling alone. A private setting will enable SMS to operate in a way which is not capital constrained, and which facilitates the investment needed to fully realise the growth opportunity presented by the UK’s energy transition.
· KKR’s operational capability, partnership approach and extensive experience with investing behind the energy transition will enable it to be a strong partner to SMS as it progresses through its next phase of development, particularly in terms of flexible access to long term competitive capital.
SMS recommendation
· The SMS Directors, who have been so advised by Investec and RBC as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing their advice to the SMS Directors, Investec and RBC have taken into account the commercial assessments of the SMS Directors. Investec is providing independent financial advice to the SMS Directors for the purposes of Rule 3 of the Takeover Code.
· Accordingly, the SMS Directors intend to recommend unanimously that SMS Shareholders vote in favour of the Scheme at the Court Meeting and that SMS Shareholders vote in favour of the Special Resolutions to be proposed at the SMS General Meeting (or, if Bidco, with the consent of the Panel, subsequently structures the Acquisition as a Takeover Offer, to accept any Takeover Offer made by Bidco in accordance with the terms of the irrevocable undertaking), as the SMS Directors who hold interests in SMS Shares have irrevocably undertaken to do in respect of their own legal and/or beneficial holdings which are under their control of 141,341 SMS Shares, in aggregate, representing approximately 0.1 per cent. of SMS’s issued ordinary share capital on the Latest Practicable Date, as detailed in Appendix III to this Announcement.
Information on the SMS Group
· SMS was incorporated in Scotland in October 2009 and the SMS Shares were admitted to trading on AIM on 8 July 2011.
· SMS is a fully integrated energy infrastructure company owning and managing meter assets, energy data, grid-scale batteries and other carbon reduction (CaRe) assets. The group manages and optimises these assets through its in-house technology and data analytical platform “METIS”.
· Established in 1995, SMS provides a full end-to-end service in metering and other carbon reduction assets, from funding and installation to management and maintenance, with a highly skilled workforce, deep engineering expertise and well-established industrial partnerships.
· Since its IPO, SMS has grown to become one of the UK leaders in smart energy assets and related data services. SMS provides a fully-integrated offering, as an end-to-end installer, owner and operator of smart energy assets, including smart meters, grid-scale battery storage systems, electric vehicle chargers and other behind the meter assets such as solar, storage and heat pumps. Its solutions are widely used across a number of settings, primarily industrial, commercial and public sectors, and the wider domestic market.
· SMS is one of the leaders in the low carbon, smart energy revolution in the UK and is committed to reducing its own carbon emissions to net zero by 2030. SMS has been recognised with the London Stock Exchange’s Green Economy Mark every year since it was introduced in 2019.
· SMS is headquartered in Glasgow with a presence across over eight locations. SMS is quoted on AIM.
· SMS employs approximately 1,500 people, primarily in the UK, and for the financial year ended 31 December 2022, SMS reported Pre-exceptional EBITDA of £63.8 million and Underlying Profit Before Tax of £24.5 million. At 31 December 2022 SMS had index-linked annualised recurring revenue (ILARR) of £97.1 million.
· At 30 June 2023 SMS reported ILARR of £110.0 million. For the six month period ended 30 June 2023, SMS reported Pre-exceptional EBITDA of £36.1 million and Underlying Profit Before Tax of £11.2 million.
Information on Bidco and KKR
· Bidco is a newly formed company indirectly wholly-owned by funds advised by KKR. KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions, with approximately US$528 billion in assets under management as of 30 September 2023. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities.
· KKR has significant experience and deep roots in infrastructure investing. KKR established its Global Infrastructure strategy in 2008 and has since been one of the most active infrastructure investors around the world, with a team of over 115 individuals, including more than 90 investment professionals and over 25 additional value-creation executives that are fully dedicated to Infrastructure. The firm has made over 80 infrastructure investments spanning the globe across various sectors including renewables, utilities, midstream, transportation, water and communications. Its portfolio companies have assets across many geographies, including the US, Canada, Mexico, Germany, France, Spain, and the UK, amongst others.
· KKR will invest in the Acquisition largely through KKR Global Infrastructure Investors IV, a US$17 billion fund focused on critical infrastructure investments with low volatility and strong downside protection where KKR believes it can achieve attractive risk-adjusted returns by leveraging its experienced team, risk-based strategy, long track record of operational value creation, and global network of industry experts.
Timetable and Conditions
· The Acquisition will be put to SMS Shareholders at the Court Meeting and at the SMS General Meeting. The Court Meeting and the SMS General Meeting are required to enable SMS Shareholders to consider and, if thought fit, vote in favour of the Scheme and the resolutions to approve and implement the Scheme. In order to become Effective, the Scheme must be approved by a majority in number of the SMS Shareholders present, entitled to vote and voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. in value of the SMS Shares voted. In addition, Special Resolutions approving and implementing the Scheme must be passed by SMS Shareholders representing at least 75 per cent. of votes cast at the SMS General Meeting.
· The Acquisition will be subject to the Conditions and further terms set out in Appendix I to this Announcement. It is expected that the Scheme will become Effective in Q1 2024.
· Bidco will work with SMS to engage constructively with all relevant stakeholders to satisfy these Conditions.
· The Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and the SMS General Meeting, together with the forms of proxy, is expected to be published within 28 days of the date of this Announcement (unless otherwise agreed by the Panel, Bidco and SMS).
Commenting on the Acquisition, Tim Mortlock, Chief Executive Officer of SMS, said:
“KKR’s offer recognises the strength and resilience of our model and will ensure SMS has the necessary capital to accelerate and unlock its full growth potential. The offer price represents a significant premium to the current share price and allows shareholders to realise immediate and attractive value for their shareholding.”
Commenting on the Acquisition, Tara Davies, Partner and Co-Head of European Infrastructure at KKR, said:
“SMS has a strong asset base and a clear strategy across different business lines which are critical enablers of the UK’s Net Zero goals, and we share the team’s vision of putting SMS at the heart of the UK’s energy transition. Achieving this growth opportunity requires significant capital of a scale, flexibility and certainty which is best facilitated in the private markets. KKR is a major investor in UK infrastructure and behind the energy transition, and we will bring our expertise and operational resources to bear in supporting SMS to invest at the level required and successfully scale its business over the long-term.”
This summary should be read in conjunction with, and is subject to, the full text of this Announcement. The Acquisition shall be subject to the Conditions and further terms set out in Appendix I to this Announcement and to the full terms and conditions which shall be set out in the Scheme Document. Appendix II to this Announcement contains the sources of information and bases of calculations of certain information contained in this summary and the Announcement, Appendix III contains a summary of the irrevocable undertakings received in relation to this Acquisition and Appendix IV contains definitions of certain expressions used in this summary and in this Announcement.
This Announcement is being made on behalf of SMS by Craig McGinn, Group Company Secretary.
Enquiries:
| Morgan Stanley (Joint Financial Adviser to KKR)Shirav Patel / Francesco Puletti / Andrew Foster / George Chalaris / Nagib Ahmad | +44 (0) 20 7425 8000 |
| Macquarie Capital (Joint Financial Adviser to KKR)Adam Hain / Ashish Mehta | +44 (0) 20 3037 2000 |
| FGS Global (PR Adviser to KKR)Faeth Birch / Alastair Elwen / Sophia Johnston | KKR-LON@fgsglobal.com+44 (0) 20 725 13801 |
| Smart Metering Systems plcMiriam Greenwood, ChairmanTim Mortlock, Chief Executive OfficerGail Blain, Chief Financial OfficerDilip Kejriwal, Head of Investor Relations | +44 (0) 141 249 3850 |
| RBC Capital Markets (Joint Financial Adviser and Joint Broker to SMS)Mark Preston / Evgeni Jordanov / Matthew Coakes / Sam Jackson | +44 (0) 20 7653 4000 |
| Investec Bank plc (Joint Financial Adviser and Joint Broker to SMS)Henry Reast / James Rudd / Shalin Bhamra | +44 (0) 20 7597 5970 |
| Cavendish Securities plc (Nomad and Joint Broker to SMS)Neil McDonald / Peter Lynch / Adam Rae | +44 (0) 131 220 6939 |
| Instinctif Partners (Public Relations Adviser to SMS)Tim LinacreGuy Scarborough | sms@instinctif.com +44 (0) 7949 939 237+44 (0) 7917 178 920 |