Energy suppliers’ moves into the home services domain was put firmly back into the spotlight last week as Centrica [CNA.L] was tipped to bid for Dyno-Rod and Powergen announced its tie up with Domestic and General. Bolstered by its successful sell-off of the AA, Centrica is in a good position to acquire a company that will strengthen its home services proposition and offer another revenue boost.
Dyno-Rod’s drain clearing portfolio makes it an attractive acquisition for Centrica, which is looking to aggressively expand the home services offering it provides through its British Gas arm. With 46% of the British Gas home services operation concentrated upon central heating service contracts – its traditional strength – it is crucial for British Gas to grow the other areas of its home services portfolio.
A year-on-year comparison shows that Centrica’s plumbing and drains care operation has grown by 18% (13 percentage points greater growth than its central heating services); however, this lags behind a 43% growth in its electrical care business and a 26% growth in its kitchen appliances business.
The acquisition of Dyno-Rod would certainly bolster this area of its operations. There are also powerful reasons why the Dyno-Rod business represents a good strategic fit: it is a market leader, promoting a highly recognizable brand within its sector. Furthermore, it provides nationwide coverage and looks to deliver a value-added service concept – it offers a 24 hour emergency service delivered through liveried engineers.
Centrica may also view Dyno-Rod as a good investment opportunity. After all, it made a sizeable return from the AA, which it sold for a GBP650 million profit. Dyno-Rod could potentially provide Centrica with the opportunity to integrate and grow a business that sits well within its core product set, but which also provides immediate scale within the plumbing and drains care area that Centrica has targeted for growth.
Powergen’s recent decision to link up with Domestic and General to provide central heating care suggests that other players are beginning to see the natural compatibilities between residential energy supply and home services. However, Centrica’s track record of operating strategically similar companies to boost its bottom line gives the Dyno-Rod speculation an additional dimension
From Comment Wire