PERTH-based SSE has agreed to sell its retail business to a rapidly-growing energy challenger in a deal worth £500 million.

Around 8,000 SSE staff, including 2,700 in Scotland, are poised to switch to a new employer after the Big Six player offloaded its Energy Services division to Ovo Group.

The deal, subject to regulatory approval, would transform Ovo into the second-largest supplier of energy to UK households, with a market share of 15%. It will add around 3.5 million customers to Ovo’s existing 1.5 million, ramping up its presence in Scotland in the process.

The acquisition underlines the meteoric rise Ovo has undergone since it was established by entrepreneur Stephen Fitzpatrick in 2009. Last year the Bristol-based firm, which employs around 2,000 people, expanded its UK customer base by around 50 per cent while opening new operations in France and Spain.

READ MORE: SSE shares rise following news of retail deal talks with rival

In November it swooped to take on around 290,000 customers from the energy supply subsidiary of Borders-based Spark Energy, which failed and ceased trading.

Japanese giant Mitsubishi took a 20 per cent stake in Ovo in February in return for providing an undisclosed amount of funding to support growth

Mr Fitzpatrick, chief executive of Ovo, said: “This transaction marks a significant moment for the energy industry. Advances in technology, the falling cost of renewable energy and battery storage, the explosion of data and the urgent need to decarbonise are completely transforming the global energy system.

“For the past three years Ovo has been investing heavily in scalable operating platforms, smart data capabilities and connected home services, ensuring we’re well positioned to grow and take advantage of new opportunities in a changing market.

He added: “SSE and Ovo are a great fit. They share our values on sustainability and serving customers. They’ve built an excellent team that I’m really looking forward to working with.”

READ MORE: Perth-based energy giant highlights renewables challenge

The deal, which comprises £400m of cash and £100m in loan notes, was struck after SSE revealed it had opened talks with Ovo last month.

SSE, whose long-term strategy is to focus on renewable energy generation and distribution, had earlier attempted to exit the retail business by merging it with npower. That deal collapsed in November, with the two parties blaming challenging market conditions and a lack of clarity on the UK Government’s price cap.

SSE said it will use the proceeds from the Ovo deal to reduce net debt. The transaction is expected to be completed later this year or in early 2020.

Alistair Phillips-Davies, chief executive of SSE, said: “We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders - and this is an excellent opportunity to make that happen.

“Ovo shares our relentless focus on customer service and has a bold vision for how technology can reshape the future of the industry. I’m confident that this is the best outcome for the SSE Energy Services business.”

READ MORE: Ofgem takes action as Spark Energy subsidiary fails

The SSE staff who will transfer to Ovo are based largely in Perth and Cumbernauld, with some staff in Glasgow also set to make the switch. Most of the people are in customer service and back office roles. Discussions have still to take place as regards the future of the Scottish offices.

In a statement to the stock market, the companies said there would be no impact on customers after completion of the deal. The statement noted that the SSE brand will be operated by Ovo under licence for a period, “allowing time for a phased and carefully managed migration”.

SSE Energy Services made an adjusted operating profit of £89.6m in the 12 months to March 31, with a reported pre-tax profit at £35.3m. Ovo made a pre-tax profit of £6.1m in the year ended December 31, 2017.

SSE shares closed up 17.5p, or 1.5%, at 1,183.5p.