Merged with ESP to create one of the largest UK gas distributors
British Gas Connections Limited (BGCL) was a UK gas connections business. It was acquired by Terra Firma as part of its bolt-on acquisition strategy for East Surrey Pipelines (ESP), the UK gas distribution business that was acquired as part of East Surrey Holdings.
Asset-Backed: BGCL had a network of 136,000 connections and a further contracted order book of 38,000 connections.
Requiring Fundamental Change: BGCL was a wholly-owned subsidiary of Centrica Plc, but was considered a non-core asset. Combining it with ESP created significant operating synergies and a strong platform for further growth.
- Terra Firma recognised the opportunity for acquisition and consolidation in the fragmented UK gas connections market and merged BGCL with ESP to create one of the largest gas distributors in the UK.
- ESP continued to push through growth by setting up contracts with multi-service utility providers.
- The additional scale added by the acquisition of BGCL enabled ESP to put in place a more professional management function.
- ESP recruited additional resources to cope with the increase in assets under management, mainly in the areas of operations, finance and supply point administration.
Developing through capital expenditure
- Further growth in the ESP network and an increase in customer connections were driven by accelerating the capital investment programme and setting appropriate return targets. The average allowed return for ESP was higher than for most other utility businesses with regulatory frameworks designed to encourage capital investment.
- Investment in upgrading systems and central controls created a strong platform for growth.
Building through mergers and acquisitions
- The scale of the business was substantially increased through combining BGCL and ESP. BGCL came to be known as ESP Connections, adding 136,000 gas connections and a contracted order book of a further 38,000 connections. The bolt-on acquisition boosted ESP’s business to make it the third-largest player in the UK.
Lowering the cost of capital to create extra upside
Status of Investment: The BGCL investment has been realised. ESP was continuing its consolidation of the gas sector in Great Britain when Terra Firma was offered a high price for the business. Its activity had caused other investors to see the value in the sector. ESP was sold to an infrastructure investor.