Cameron O’Reilly, eldest son to Tony O’Reilly, looks poised for green economy success with his smart metering firm, writes John Walsh.
When Cameron O’Reilly was studying at Oxford University, he led an expedition to China. That hardly seems surprising in today’s environment when college years before and after are punctuated with round-the-world trips taking in all sorts of exotic locations. But O’Reilly’s jaunt was in 1986 when China was an unknown quantity and many countries in between were difficult to negotiate. What’s more, he did it on a motorbike.
That adventurous spirit was a pointer of things to come. When the eldest son of Tony O’Reilly graduated, he joined the investment bank Goldman Sachs. He moved to Dublin in 1988 to join Independent News & Media (IN&M) as a marketing executive but he was quickly on his way to Australia to take up a position with APN, a company that IN&M had taken a sizeable stake in. It looked then as if his career was on a pre-determined path. After all, APN was at the beginning of a lengthy growth phase that was inevitably going to throw up plenty of opportunities.
But to the surprise of many, Cameron O’Reilly resigned as chief executive of APN in 1999 and embarked on a solo career. That in itself prompted speculation that there had been a falling out between father and son. O’Reilly junior has always politely declined to add grist to the rumour mill. The fact that he still sits on the board of APN and has remained very close to his family would suggest that it was never anything more than unfounded gossip.
Smart metering doesn’t sound very sexy. It’s certainly a lot less glamorous than media but that is exactly where O’Reilly fetched up. Following APN, he set up an investment vehicle Bayard Capital which eventually took over the Swiss firm Landis+Gyr. It is the biggest smart-metering company in the world in what may potentially be one of the most lucrative sectors over the next couple of decades.
Anything to do with the green agenda is one of the few things to get investors excited these days. A lot of businesses in the alternative energy space are seen as having great potential but a bit like many of the dotcom companies in the late nineties/early noughties, are untested business models. Landis+Gyr has a very real business model.
In 2008, the company recorded a turnover of $1.36bn. In 2009, O’Reilly says that turnover remained roughly the same and earnings were in the $160m ballpark. Not bad for a year when the global economy was experiencing its worst bout of turbulence since the 1930s.
It is going to be a busy few years for the company and its management team. Not only do they have to keep on top of a rapid phase of growth, there is also an initial public offering in the pipeline.
Landis+Gyr had planned to go to the markets in 2008 but the collapse of the Wall Street investment bank Lehman Brothers forced a rethink. Liquidity dried up and the investors who were left standing wisely chose safe-haven assets. “The economic headwinds really started blowing,” says O’Reilly.
He plans to get an offering underway over the next 12 to 18 months. “We did most of the groundwork in 2008 with our investment banks and advisors.” It is now a question of waiting for the best time for the company and the right market conditions, he adds.
To this end, recent signs have been encouraging. “Life is starting to come back into the markets. There have been a number of successful IPOs recently.” He doesn’t see any reason why Landis+Gyr won’t go public over the next year and a half “unless something happens and the markets go into paralysis again.”
Where the offering takes place has still not been finalised, but it will either be New York or Switzerland. “That still has to be decided. It is a much more established market in the US. There are a number of comparable companies in the US but Landis+Gyr has a very strong brand name in Switzerland. Its history goes back over 100 years.”
Mergers and acquisitions is the most effective way for any company to beef up its growth potential. Moreover, company valuations have come back into line over the past couple of years following the dizzying multiples seen over much of the noughties. Private-equity firms remain on the sidelines, although more importantly banks are not doling out the same credit lines that they were for much of the past decade.
As well as its current operations in smart metering, there are also massive opportunities for Landis+Gyr in meter-data management, demand response, distribution automation and in-house automation. The total estimated worth of the overall sector is $1.5trillion.
Turnover US$1,364m (2008)
R&D 5.6% of turnover
Employees 5,070 worldwide
Companies 45, operating in 30+ countries
O’Reilly doesn’t plan any material acquisitions in the near future and certainly not before an IPO. On the other side of a public offering. he doesn’t rule out becoming active on the market. “We don’t have any plans at the moment, although we are always looking at companies.”
Landis+Gyr has some high-profile and very creditworthy shareholders including Credit Suisse, the Dubai government, the government of New South Wales and Allianz among others. It announced in April that it had brought in $165m in another round of fund-raising which included DLJ Merchant banking – a division of Credit Suisse. That brings to a total $265m raised over the past 12 months.
O’Reilly says the board of directors made the decision to fortify the balance sheet over the past couple of years. “I am delighted that we now have a very substantial balance sheet and shareholders who continue to support the company.
“Obviously, market conditions made the funding more expensive, however raising more than a quarter of a billion dollars in these markets is a great validation of the company and it is the largest amount raised by any smart metering company globally.”
The breakdown of the company’s operations shows a split of 40% of revenue generated in the US, another 40% generated in Europe and the balance in Asia Pacific and South America. The US and Europe offer huge growth potential over the next decade “with Asia Pacific coming slightly after that”.
What is smart metering?
Following the first oil shock in the 1970s, there was a massive drive to increase energy efficiencies and reduce the dependence on fossil fuels. The move now is to create alternative forms of energy. The global economy is on the cusp of one-off transition to the green economy.
Smart metering comes at the problem from a different angle. Instead of coming up with an alternative-energy source, it focuses exclusively on the demand side of the equation. There is no way of storing electricity which means that huge volumes of what is now becoming a precious commodity get wasted. Moreover, the way that the electricity infrastructure is currently configurated, there is also a huge mismatch in terms of electricity generation and demand. That means that peak plants have to be deployed to meet demand spikes. O’Reilly describes it as “the low hanging fruit basket that has the potential to make huge energy savings.”
The US vice president Joe Biden recently commissioned a report into the use of smart metering. The report concluded that 40 million smart meters will be rolled out across US homes by 2015 and it has the ability to reduce demand for electricity at peak times by 20%.
The premise behind smart metering is this: “With knowledge accessed through the AMI [advanced metering infrastructure], customers could improve energy consumption patterns and save on their electricity bills.
“For example, customers who want to wash and dry their clothes will be able to determine if demand for electricity is high by reading their meters to learn whether electricity is at a peak price point. If this is the case, some customers may delay their washing and drying until such time as the price of electricity comes down.
“While customers save on their energy bills, the utility avoids additional strain on electricity distribution during times when the network is already stretched thin. At the same time, utilities would collect a new, rich stream of data, enabling a more seamless and timely rerouting of energy to where and when it is needed most—as well as a more accurate and detailed prediction of future energy demand,” according to a recent report by PwC.
The electricity regulator of every country or region will sit down with the relevant utility company and do a cost-benefit analysis of rolling out smart meters. The utility company would stump up the initial cost of the meters and then recoup this fee from its customers over an agreed timeframe.
The results have been impressive so far. In Italy, a Landis+Gyr subsidiary designed the smart meter that has been installed in 25 million homes in conjunction with the giant utility company Enel.
The move delivered the utility savings of €600m each year. And that was with first-generation technology, explains O’Reilly. The sector has now moved onto third-generation technology and Landis+Gyr pumps 5.6% of its turnover into research and development every year to ensure that it keeps on top of industry trends. The IPO will test investors’ appetite for the company but Landis+Gyr certainly has a good story to sell.
Rise of O’Reilly: Biography
O’Reilly was born in Dublin in April 1964, the son of Tony O’Reilly and Susan Cameron. His accent is hard to pin down and reflects his peripatetic existence from a young age. By the time he was 14, he had lived in Dublin, London and Pittsburgh. His secondary school education was completed at Clongowes Wood. He studied PPE (politics, philosophy and economics) at Oxford University where he played an active role in college life. He was a member of the Oxford debating team and was the treasurer of the Oxford Union. He was equally prolific on the sports field and represented the college in tennis, rugby and punting.
After college, he spent a few years with the investment bank Goldman Sachs. He left the bank to join Independent News & Media in 1988, initially in Dublin although quickly moving onto its Australian subsidiary APN. It was there that O’Reilly ramped up the corporate ladder. Following a series of senior positions with APN, he was appointed chief executive officer in 1996.
He embarked on an expansion programme, in both radio and print, that saw APN become a major player in the Australasian media sector. It is one of the most profitable units within the IN&M organisation.
O’Reilly is married to Ilse and has four children. He relocated from Sydney to New York in 2008. His two eldest children have returned to Australia to attend boarding school.
APN: Failed campaign to oust O’Reilly
Apart from Landis+Gyr, Cameron O’Reilly’s other main directorship in the corporate sector is sitting on the board of APN. His tenure came in for criticism at the company’s AGM at the beginning of May. Peter Costello, on behalf of boutique investment firm BKK, ran a highly public campaign in the run-up the APN’s AGM calling on all shareholders to reject the reappointment of Cameron O’Reilly to the board on the grounds that IN&M had too close links with existing directors. There were a series of heated exchanges. At one stage, IN&M chief executive Gavin O’Reilly threatened legal action. In the event Cameron O’Reilly was re-elected. Australian-based investor chatrooms are awash with [conspiracy] theories about Costello and BKK’s true motives. For legal reasons they will not be disclosed here, but many suggest that the motives were far removed from concerns about the relationship between IN&M and the board of directors. O’Reilly declined to comment on the affair.