KKR has agreed to take Smart Metering Systems private in a deal worth an enterprise value of about $1.7 billion. On paper SMS is a company that manages meters. KKR is paying a multiple that UK buyers usually reserve for something else, and its own description of the plan explains why.
Key takeaways
- KKR announced on 7 December 2023 a recommended all-cash acquisition of Smart Metering Systems by Sienna Bidco, a company wholly owned by KKR-advised funds, at an enterprise value of about $1.7 billion.
- The KKR offer values the entire share capital of Smart Metering Systems at about $1.6 billion on a fully diluted basis, or $12.02 in cash per share, a 40.4 percent premium to the closing price of $8.56 on 6 December 2023.
- Smart Metering Systems reported EBITDA of $82.3 million and revenue of about $175 million for the twelve months to June 2023, putting KKR's offer at about 20.7 times EBITDA and 9.7 times revenue.
- KKR believes privatisation will help Smart Metering Systems move from a metering provider and battery storage operator to an integrated energy infrastructure company that owns, installs and manages carbon reduction assets.
- Enerdatics records 41 UK corporate energy transition transactions in 2023 and 2024, of which five carry an EBITDA multiple, with a median of 16.0 times.
What is KKR buying in Smart Metering Systems?
A meter business with a battery business growing out of it. SMS was incorporated in Scotland in 2009 and listed on AIM, the London Stock Exchange's growth market, in July 2011. It manages meter assets and energy data, owns grid-scale batteries and other carbon reduction assets, and designs, deploys and manages charging infrastructure for electric vehicles, including fleet charging with its own management software.
The meters are the foundation. Meter assets typically earn steady payments over a long life, which is the kind of income infrastructure funds value. The batteries and charging assets are where the growth sits, and they need capital that a small listed company finds harder to raise.
Leap classes the deal under EV and services because of that charging business, but the plan KKR sets out is broader than any one segment.
Why pay 20.7 times EBITDA for a metering company?
Because KKR is not pricing it as only a metering company. EV/EBITDA is a valuation multiple: the enterprise value divided by a year's earnings before interest, tax, depreciation and amortisation. A higher multiple means a buyer is paying more for each dollar of current earnings, usually because it expects those earnings to grow.
At an enterprise value of about $1.7 billion against EBITDA of $82.3 million, the offer works out at about 20.7 times. Against revenue of about $175 million it is 9.7 times. KKR's stated aim is to turn SMS into an integrated energy infrastructure company that owns, installs and manages carbon reduction assets. The multiple is a bet on that version of the business, not the current one.
The balance sheet supports the plan. SMS had an undrawn debt facility of $324.5 million at June 2023. That is capacity to build batteries and charging assets without new equity, which is more useful to a private owner with a long horizon than to public shareholders watching each half-year's earnings.
How generous is the premium to shareholders?
Generous on every measure the offer used. The $12.02 cash price is a 40.4 percent premium to the closing price of $8.56 on 6 December 2023, the last business day before the offer. It is a 50.7 percent premium to the three-month volume-weighted average price of $7.98, and 43.8 percent to the six-month average of $8.36.
Shareholders also keep the second FY2023 dividend instalment of $0.1 per share. The offer includes a protection for the buyer: Sienna Bidco can cut the price if SMS announces any further dividend or distribution, unless Bidco is entitled to receive and keep it under the scheme. Once complete, SMS leaves AIM. The acquisition was expected to become effective in the first quarter of 2024.
The board recommended the offer, and both sides used heavyweight advisers. Morgan Stanley and Macquarie Capital advised KKR on finance and Simpson Thacher & Bartlett on law. Investec and RBC advised SMS on finance, with Hogan Lovells and Burness Paull as legal advisers.
Enerdatics records 41 UK corporate transactions in energy transition sectors announced across 2023 and 2024. Only five carry an EBITDA multiple. Their median is 16.0 times. The lowest is 5.9 times, for Pioneer Point Partners' $130.8 million purchase of Esken Renewables. Searchlight Capital's $576.8 million takeover of Gresham House, which Leap classes under battery storage, came in at 16.0 times. At 20.7 times, SMS ranks second of the five. The highest, at 83.0 times, is the roughly $1.09 billion purchase of 65 percent of battery developer Zenobe by KKR and Infracapital in September 2023. On revenue, SMS's 9.7 times is the highest of the five that disclose one.
What does the deal signal for UK energy infrastructure?
It signals that private infrastructure capital is willing to pay growth multiples for UK platforms that combine contracted cash flows with storage. The two highest EBITDA multiples in the Enerdatics UK set both belong to KKR, both involve businesses that own or build batteries, and both were struck within three months of each other in 2023.
The logic is consistent. Zenobe was bought as a battery developer with assets in construction. SMS comes with a base of meter assets that earns income while the battery and charging portfolio grows. Buying both gives KKR exposure to UK storage through two different routes.
It also signals a gap between how public and private markets were valuing these businesses. A 40 to 50 percent premium to recent trading prices means AIM investors were valuing SMS well below what a private buyer would pay. For other listed UK energy infrastructure companies trading at a discount, that gap is the opening a take-private fills.
The risk sits in execution. A multiple of 20.7 times only looks reasonable if the integrated energy infrastructure business KKR describes is actually built. If the battery and charging growth stalls, KKR will own a metering company bought at a price set for something bigger.
Frequently asked questions
How much is KKR paying for Smart Metering Systems?The offer values SMS's share capital at about $1.6 billion on a fully diluted basis, implying an enterprise value of about $1.7 billion. Shareholders receive $12.02 in cash per share.
What multiple did KKR pay for SMS?On EBITDA of $82.3 million and revenue of about $175 million for the twelve months to June 2023, the $1.7 billion enterprise value equals about 20.7 times EBITDA and 9.7 times revenue.
What will happen to SMS after the deal?SMS will be delisted from AIM and taken private. KKR plans to develop it into an integrated energy infrastructure company that owns, installs and manages carbon reduction assets.
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