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Financing IoT

FEB 07, 2020 | Jim Morrish
 
region: ALL sector: ALL Internet of Things

Today Calisen Group successfully floated on the London Stock Exchange, with a GBP1.3bn (USD1.7bn) listing.

Calisen isn’t exactly a household name, but it’s majority owned by the somewhat better-known global investment group Kohlberg Kravis Roberts (KKR). Calisen’s business splits into two parts, combining to offer a ‘one-stop-shop’ proposition, which encompasses procurement, installation, ownership and management of electricity and gas meters:

  • Calvin Capital which procures, owns and manages a growing portfolio of domestic electricity and gas meters, with a particular focus on smart meters on behalf of energy retailers who make Meter Procurement Charge (‘MPC’) payments to Calisen on a long-term contracted basis.
  • Lowri Beck which offers complementary capabilities to carry out installation, meter reading and maintenance services on behalf of Calisen’s energy retailer customers.

Whilst the company operates a portfolio of 7.6 million meters, 4.7 million of which are smart (June 2019 figures), a lot of the valuation seems to be based on the potential for their model of financing assets and offering associated services.

The first element of the potential is clearly the potential for smart metering, including outside the UK. A lot of smart meters will be installed in coming years, and somebody has to finance and install them. But the energy industry is characterised by a lot of customer churn between providers, and Calisen’s secret sauce seems to be to sign contracts with those churn energy retailers, so preserving their cashflows.

The second element of potential, of course, is all of those other IoT assets that will be connected over the years. In Calisen’s own words “over time other assets such as batteries and EV chargers will have to be connected to the smart meter. The level of investment required in these assets is a very large multiple of the investment being made in smart meters in the UK today.” We tend to agree.

Servitisation has been one of the buzzwords of IoT for years, but the flip-side of every servitised (xaaS) proposition is a need to finance the asset. This is where groups like KKR will find rich pickings. And particularly in the IoT space, since financing IoT assets can potentially be achieved at far lower levels of risk (and so costs, due to lower risk premiums) than standard enterprise financing. Effectively, financing for smart meters (and many other IoT assets) can be regarded as being ‘secured’. IoT status information provides insight into asset condition and expected remaining life, and pre-emptive maintenance ensures asset longevity. Financiers can know for sure exactly what it is that they are lending money against. And in the case of smart metering there is an additional beneficial dynamic whereby a specific meter will still be required in the event that the associated energy provider ceases trading. It’s effectively a perfect secondary market for assets which may otherwise be distressed.

In the case of offering larger scale IoT connected assets as-a-service there are likely to be additional benefits in the costs of insurance. High quality, up to date, information about the condition of an asset and a commitment to pre-emptive maintenance will reduce the risks of breakdown of an asset, and so reduce associated insurance costs (including for related business continuity).

Historical information about an asset, including maintenance records, may also lead to a tightening-up of valuations in secondary markets as asset valuations are based on more information (and so less risk). And if assets are offered as a service, then it’s less important that the asset is ‘new’ and more important that it ‘functions reliably’. The same logic applies to the cannibalisation of assets at the end of their useful lives, and re-use of components as spare parts for other assets.

There is likely to be a lot of opportunity in, and around, providing connected devices ‘as-a-service’ in the future, but the ace calling-card for market entry is likely to be the ability to finance. Expect a lot more activity in this space, as investment funds seek out low-risk ways to boost returns in what seems to be an era of generally low interest rates.

2020

2019

FEB 06, 2020| Jim Morrish Previous Post
Achieving scale in IoT
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