Utilities connections business Smart Metering Systems' 2011 IPO on AIM and has allowed it to fund new acquisitions using its own shares as currency, CEO Alan Foy explains.

Making a smart move

In 2004, Alan Foy’s friends suspected a mid-life crisis when he decided to quit his senior role at Scottish Power, remortgage his house and buy into a fledgling utilities connection business, which eventually became Smart Metering Systems (SMS). He even sold his car to commit the cash.

But what others saw as a moment of madness, entrepreneur Foy saw as his opportunity to establish a new kind of business. “When I joined, we decided to change the model completely. Competition had just been introduced into the utilities industry. We decided to turn a utilities construction business into an asset-owning metering business. We were able to build off our existing client base. We invested more of our own cash into developing IT systems and to fund metering assets.”

Foy continues: “We grew steadily, as fast as we could with the cash we were generating from the business. By 2008, we were growing too fast to fund the business with existing cash, so we borrowed £2.5m to invest further.”

Alan Foy

Smart Metering Systems
raised by Smart Metering Systems in 2011 IPO on AIM

Realising value from the business

By 2011, original founder Steve Timoney wanted to retire and take some of his hard-earned capital out of the business. But with bank debts of around £8m and a capital-hungry growth business to feed, that wasn’t possible without a big change.

“The advice of our non-executive directors and our accountancy firm was the same: we shouldn’t sell immediately, but instead we should bring in venture capital to strengthen the balance sheet,” Foy recalls. “But that wasn’t what Steve wanted, he was keen to have a clean break.”

“We wouldn’t have been able to make that acquisition if we hadn’t been listed. They saw the rising share price and the benefits of bringing their business together with ours.”

Floating a big idea

The idea of an IPO was raised, but was dismissed by the advisers. However, Foy isn’t a man who takes advice unchallenged. “We went to see three Nominated Advisers and presented our business, and they came back with proposals for listing. All three came back suggesting a valuation of around £40m, said that the float could be done within six months and offered to do the IPO on a contingent fee, with no cash up front. So we did it and we were over-subscribed. We got our £27m for the company and £17m of placed shares, most of which were Steve’s.”

The founder sold £15m of shares in the IPO, but still retained a 25% stake in SMS. As a member of the IPO class of 2011, SMS has experienced being a public company over a number of years. The changes were noticeable immediately, says Foy.

“We were installing 2,000 meters a month when we were admitted to AIM. By December that year, we were installing 9,000 meters a month because we had the capital we needed. There was also a different perception of our business,” he continues, adding that everyone from customers to suppliers to banks took the listed company more seriously.

Share the benefits of growth

There was another advantage – perhaps the most critical – that has helped power SMS to further growth over the years. SMS’s share price strength meant it was able to acquire Utility Partnership in 2014, using its own shares as currency.

“I am convinced we wouldn’t have been able to buy that business if we hadn’t been listed,” Foy says. “They saw the rising share price and the benefits of bringing their business together with ours. It meant that they were able to participate in the benefits of that rather than just getting cash on day one.” SMS has since made another three complementary acquisitions, two in installation and one in IT, with payment in shares as an important factor in the deals.

Energy for business success

As a public company, SMS has had the capital available to take advantage of all the growth opportunities in smart metering over recent years, including moving into domestic smart metering. Perhaps because of the rising share price – from 60p on listing to 650p in mid-2017 – SMS shares have proved relatively liquid.

What final advice does Foy have for companies considering an IPO? “Take advice – but don’t feel constrained to act on it. No one will know your business like you do. If I had listened to our consultants’ advice, we would not have gone for the IPO. But make sure you have a solid team, a strong chairman and non executive directors are essential and need to be in place before you move.”

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