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Germany’s E.ON is closing in on a £550mn-£600mn deal for UK household gas and electricity supplier Ovo, in a move that would mark a major consolidation amid growing pressures in Britain’s retail energy sector.
The German energy giant is in advanced talks to take over the Ovo business less than two decades after it was set up by entrepreneur Stephen Fitzpatrick to challenge legacy suppliers such as British Gas and E.ON itself, according to people familiar with the matter.
A deal could be reached within weeks, the people added. E.ON’s existing UK division serves roughly 5.6mn customers while the combined entity with Ovo would serve about 9.6mn customers, making it potentially the largest in the country.
The deal does not include Kaluza, Ovo’s software arm which is used by Ovo and licensed to other energy companies globally. E.ON currently uses the Kraken software developed by Ovo’s rival Octopus Energy.
The potential takeover comes as E.ON and other legacy suppliers aim to build scale to help them cope with thinner margins and fend off competition from Octopus Energy, which last year overtook British Gas as the sector’s largest supplier.
Ovo has been trying to attract investment. Last year, it warned it had not yet met new capital adequacy targets put in place by regulator Ofgem and cautioned there was a “material uncertainty” over its ability to continue as a going concern.
However, it agreed a capital plan with Ofgem, meaning it was not in breach of the watchdog’s rules.
The deal would mark the latest shake-up in a sector that has changed rapidly over the past decade as a result of increased competition and energy price crises.
Ovo was set up in 2005 as one of the first suppliers trying to challenge the dominance of so-called Big Six energy providers, which were accused by the challengers of overcharging customers and giving poor customer service.
The company, which is backed by investors including Mitsubishi, grew rapidly overnight when it bought SSE’s retail arm in 2020 for £500mn. But the deal left it with debts as well as the challenge of integrating millions of new customers.
One of its main rivals, Bulb, collapsed in November 2021 following a surge in wholesale gas prices that triggered the collapse of about 30 energy companies and ultimately strengthened Octopus Energy.
The FT first reported in February that Ovo was holding talks with buyers including E.ON as it sought funds to meet its capital requirements. Ovo also attracted interest from French utilities Engie and EDF and the UK’s Telecom Plus, which trades as Utility Warehouse.
A spokesperson for Ovo declined to comment. E.ON did not respond to a request for comment.
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