A public 'multi-utility' that operated infrastructure businesses in the UK
East Surrey Holdings (ESH) had three core operations: East Surrey Pipelines (ESP), a gas distribution business in Great Britain; Sutton and East Surrey Water (SESW), a water supplier in the South of England; and Phoenix Natural Gas (Phoenix) a gas distribution business in Northern Ireland.
ESH was an asset-rich business and, between the three divisions, it owned and operated 3,000 km of distribution pipeline as well as several reservoirs and water treatment plants. The group’s multi-utility strategy brought no operational or strategic synergies, no regulatory synergies and no capital advantages as the UK market did not separately value risk and opportunity profiles.
The group provided the perfect opportunity to separate and reposition the assets, change the risk profile of the cash flows, resolve the regulatory uncertainty and transform both the value of the assets and the market of potential purchasers.
The ex-growth SESW division represented a good near-term opportunity for sale to yield investors and was sold to an infrastructure investor in January 2006. ESP was merged with BGCL, which Terra Firma acquired from Centrica, to create one of the largest gas distributors in the UK.
Terra Firma retained Phoenix until 2013, recognising its strong growth prospects. The business achieved a 55% increase in natural gas penetration across Belfast and committed to achieving an overall market penetration of 60% by 2016 through continued investment.
The ESH investment has been fully realised. ESH sold SESW and ESP to infrastructure investors in 2006, leaving the Phoenix Natural Gas business, comprising Gas Supply, Distribution and Transmission. Phoenix sold its Transmission division in 2008, the Supply businesses in 2012 and in August 2013, Terra Firma sold the Phoenix Gas Distribution business to Utilities Trust of Australia and The Royal Bank of Scotland Group Pension Fund.