Co-op Energy has moved to acquire Flow Energy for a headline £9.25 million.
If it goes ahead, the deal will represent a major mid-market merger in the UK’s domestic energy retail market, combining Flow’s customer base of around 130,000 with Co-op’s base of around 320,000.
Co-op’s offer to Flow Energy will be subject to scrutiny at the latter’s company meeting next month. If accepted, it would include the sale of Flow’s entire share capital in its retail business.
Commenting on the acquisition move, Co-op Energy chief executive David Bird said: “Our proposal to acquire Flow Energy Limited will continue to build our movement by welcoming a large number of new customers into what is already the largest member-owned supplier in the UK energy market.”
He added that boosting Co-op’s customer numbers with Flow’s would allow the business to “extend our co-operative values to a larger audience and further strengthen our ability to support renewable, community-owned energy generation in the UK”.
The future of Flow Energy has been the subject of market speculation for some time.
In 2017 the supplier indicated it was considering disposal of it’s retail unit in order to focus more heavily on the development of its smart boiler business in Europe.
Subsequently however, Flow Group – Flow Energy’s parent company – reversed this decision, after a US-based investor offered to provide funding to help turn the business into a “viable challenger” to the major UK energy retailers.
In a recent stock exchange statement Flow Group confirmed that while significant progress had been made since the May 2017 investment announcement “the headwinds facing challenger suppliers” in the UK “have continued to strengthen”.
In particular, the statement indicated the prospect of widespread price regulation in the market, and the significant number of new entrants pursuing aggressive pricing strategies, have created business challenges.
It said the likelihood that large suppliers will respond to the proposed default tariff cap by lowering their standard variable tariffs means an “erosion of the differential between the prices challenger suppliers are able to offer and the tariffs being offered by the big six,” should be expected.
Furthermore, following the recent cold spell, Flow Energy – placed in the top two customer service rankings by Which? in January – was said to be funding increased consumer energy consumption costs in the short term using working capital.
Co-op Energy should be well prepared for the challenge of serving a sudden influx of new customers if it’s offer to Flow is accepted.
In 2016 the supplier took on 160,000 customer from GB Energy Supplier when the small retailer went bust. In December 2017, Co-op won Utility Week’s Customer Care Award for its handling of this situation.
The sale of Flow Energy to Co-op Energy will be conditional on a revised supply agreement between the latter and Shell.