SHARES in Aggreko gave up 3.5% yesterday after it emerged that an investment vehicle of Pizza Express and Punch Taverns co-founder Hugh Osmond is to buy APR Energy, a smaller rival in the lucrative temporary-power sector.
Mr Osmond’s Horizon Acquisition cash shell will pay $855 million (£525m) for APR in a deal the City clearly believes will put pressure on Glasgow-based global market leader Aggreko.
Rupert Soames, Aggreko’s chief executive and the grandson of war-time prime minister Sir Winston Churchill, was said to be travelling yesterday and could not be reached for comment.
However, a person familiar with Aggreko who asked not to be named, said the Scottish company remained unconcerned.
“Aggreko maintains a significant advantage, because it is still a significantly larger company,” the person said.
“Aggreko has also been competing successfully against APR for more than a decade without any real threat at all – and there is every indication that it will continue to do so.”
Temporary power in recent years has become one of the world’s fastest-growing sectors.
Emerging regions in Asia, Africa, South America and elsewhere, along with hundreds of millions of people, their governments and their countries’ frail infrastructures, rely on the heavy-duty generators of power-hire companies such as Aggreko and APR to keep the lights on.
Mr Osmond has likely judged that APR is poised to benefit from this mismatch between the surging demand and the trailing supply of power in emerging economies.
The sector, which always receives a fillip in times of natural disasters such as hurricanes and floods, has also been boosted by the recent earthquake in Japan, which knocked out some generation capacity and landed both companies contracts with Tokyo Electric Power Company as part of the relief effort.
Nonetheless, industry observers will recall that Aggreko’s own transformation came with its 2006 acquisition of the bulk of the Energy Rentals operation of General Electric, which increased the rental capacity of Aggreko’s fleet by 30% in one fell swoop.
It gave the company the scale it needed to compete for plum jobs, such as huge sporting events like the Olympic Games and the World Cup, which has since become one Aggreko’s signatures.
At the same time, it bolstered its position in some 35 key geographic markets ranging from the US to Australia and Brazil.
Meanwhile, APR, whose shareholders include billionaire George Soros and former US Secretary of State Madeleine Albright, mainly supplies government utilities in developing nations, an area also very much in Aggreko’s scope of interest.
Aggreko shares yesterday lost 61p to close at 1874p on concerns over the potential increase in competition from its beefed-up rival.
The Horizon acquisition gives APR access to a significant pile of cash for expansion.
Under the terms of the acquisition, Horizon said it will pay for APR with $359m in cash and 32.1 million Horizon shares, and that deal will leave about $275m of cash on its balance sheet, which will be used to expand APR’s pipeline of projects.
Soros Fund Management and Albright Capital Management are rolling the majority of their investment into Horizon shares and will own about 14% and 13% respectively of Horizon’s share capital.
Mike Murphy, an analyst at Numis, which acted as an advisor in the acquisition of APR, said: “This suggests Aggreko may face more competition.
“It (APR) will have substantial resources for investment as a quoted group.”
Horizon shares, which closed at 950p on Friday, have been suspended.
Re-admission of Horizon shares, which will be renamed APR Energy, on the London Stock Exchange is expected to occur by the end of September this year.
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