Centrica continues its acquisition strategy outside Europe

Centrica has extended its US presence with the purchase of Energetix and NYSEG Solutions.

Centrica's acquisition of US energy suppliers Energetix and NYSEG Solutions will add 245,000 customers to its existing commercial and residential base under its US brand, Direct Energy, in the states of New York and Pennsylvania. The purchase will take Centrica's US customer base to 5.5 million customers and is a further move in the company's aggressive strategy of seeking growth outside Europe. 

The acquisitions of Energetix and NYSEG Solutions are just the latest in a flurry of M&A activity at Centrica, the parent company of British Gas in the UK. Indeed, in March 2011, Centrica acquired Gateway Energy Services, a retailer based in New York; Vectren Source, a gas supplier based in Indiana; and First Choice Power, a utility based in Texas.

The acquisitions highlight Centrica's strategy to expand in US states with deregulated retail markets, such as Texas and New York. In addition to strengthening its business in the UK, Centrica is likely to continue to acquire utility and complementary companies in the northeast of the US, where retail markets are open to competition and where there is the potential to earn better returns.

For example, Centrica, through Direct Energy, acquired a home protection plan business in Illinois called Home Warranty of America (HWA) in November 2011. HWA offers whole-home warranty plans, including heating, air conditioning, plumbing, and electrical insurance cover. Although the combination of Direct Energy's services with HWA imitates British Gas's service offering in the UK (providing customers with a complete energy and protection plan service) this approach is relatively new in the US market.

Centrica has also undertaken vertical expansion of its Direct Energy subsidiary, having added two businesses to its upstream gas arm in Canada in March (in the Wildcat Hills region, Alberta) and December 2011 (Carrot Creek, Alberta), in addition to natural gas reserves in Alberta, Canada, bought in March 2011.

The strategy to move away from continental Europe was underscored when Centrica sold its Netherlands electricity and gas retail business Oxxio BV in March 2011.  The sale followed Centrica's exit from other continental retail markets as it had previously sold subsidiaries in Spain (Centrica Energia SL) and Belgium (SPE).

Written by Yasmin Valji.

Analyst, Datamonitor Energy & Utilities.