French energy giant Engie is holding conversations with potential advisors as it looks to embark on the long road to carving a New Solutions division, three sources familiar with the matter said.
The company has not sent out requests for proposals but is in discussions with a number of parties, one of them added.
Engie first announced a strategic review of around two-thirds of its Client Solutions business in late July, followed by comments by its chairman about a potential carve out of this client services offering in a carved out ‘New Solutions’ entity.
The carve-out plan – known as Project Hercules – is potentially very complex, the sources and a sector executive said. It could take up to two years for any deal to be executed, the first source added.
The company will most likely pursue an IPO of New Solutions, the second source said, as a sale, whether to a strategic or financial investor, would be more difficult to execute given the large shareholding of the French state in Engie and the needed works council approvals.
More so, the company has no liquidity constraints that would catalyse the need for a trade sale, especially given its recent divestment of its stake in Suez , the second source said.
On the face of it, this is a classic carve-out and IPO or spin-off to maximise value of the separate parts, this source said. Engie has a history of performing similar carve-outs, a sector advisor tracking the deal said, wherein the target is then floated and the parent retains a large, and usually controlling, equity stake.
However, the perimeter of the carve-out – which assets and services within Client Solutions will form the New Solutions entity – has yet to be decided, the second and third source said, and until this is known, the size and valuation of any listing is unclear, and could involve a business with revenue anywhere from EUR 5bn to EUR 20bn.
In 2019, Client Solutions – installations, construction and energy efficiency – accounted for EUR 1.09bn current operating income, of Engie’s total EUR 5.73bn, which it notes was boosted by a number of acquisitions, such as Conti in North America, Otto Industries in Germany and Powerlines in Austria.
New Solutions could include assets and services spread across a number of divisions, so putting together a larger carved out package could be difficult if its constituents are interwoven with other parts of the business, the third source said.
In a simple scenario, all non-power generation and grids assets and services, such as facilities management and industrial maintenance and operations, would form the New Solutions business, the second source said.
However, there is also an intrinsic level of international and country-by-country complexity to this, and Engie will need to look first at its footprint in each jurisdiction, this source said.
In the UK, for example, Engie’s First Hydro subsidiary will clearly stay within Engie, but it will likely also retain its retail and electric vehicle charging business as these provide a hedge to the power generation, this source said.
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by Patrick Harris in London