The spin-off of Octopus Energy software is a sound idea

Tech startup Kraken has strong performance in terms of profitability and growth.

The Kraken , the name of a giant cephalopod, is the stuff of myth. Can a software platform of the same name bring forth wealth from the depths ? Octopus Energy , its current owner, hopes so.

Octopus plans to spin off its technology division , which powers the company's back-office functions, into a separate entity at a valuation that could perhaps reach $10 billion (€8.55 billion). That sounds like a lot: Octopus itself, including Kraken, was valued at $1 billion less in a fundraising round last year. That would be a multiple of about 50 times last year's sales of $185 million, while its peers trade at an average of 10 times.

Perhaps mythical beasts require heroic assumptions. Kraken's revenue grew 33% in the year to April 2024; assuming it maintains that pace for the next three years, it would rise to nearly $440 million. Applying the 15-times sales multiple of industry-leading US software company ServiceNow yields a valuation of just $6.6 billion.

It's true that Kraken has good numbers in terms of profitability —no mean feat for a tech startup —and growth . Like traditional software-as-a-service (SaaS) companies, such as Germany's SAP or the US's Salesforce , Kraken and its peers earn regular revenue from licensing, as well as from system implementation and integration.

It's a boring business, but like the suction cups of a giant sea creature, it's sticky. Once companies have migrated their customer billing and other business functions to a software platform, they tend to stay for the long haul. Kraken already serves about 40 clients beyond Octopus, with a total of more than 70 million customers. Its latest addition, US National Grid , has added more than 6 million customers. In addition to energy, it also has tentacles in water and telecommunications.

Third-party customers appreciate the efficiency these platforms bring, which in some cases can, according to Kraken, reduce the need for 17 legacy systems to just one. Data archiving is also valuable, allowing providers to balance demand—for example, by offering cheaper rates for running dishwashers at night.

Octopus is far from the only disruptive startup with a software arm. The growing number of competitors includes Kaluza , launched by OVO Energy , ENSEK , acquired by Centrica last year, and Tridens Technology . It's not just about electricity, either. Engine , a software platform created by neobank Starling , aims to have 40 global customers within the next four years. E-commerce players like Ocado also have tech roots.

A successful Kraken spin-off and subsequent IPO could well set the tone for other technology platforms to become more open. This is what bankers hoping to launch deals that could revive the M&A market hope. But spin-offs can also fail. Just ask online retailer THG , which sells everything from vitamins to lipsticks. A deal valuing its technology platform at over $6 billion fell through, leaving that platform, Ingenuity, under £100 million (€116 million). Octopus's advisors will be banking on Kraken establishing a better brand.

© The Financial Times Limited [2025]. All rights reserved. FT and Financial Times are registered trademarks of Financial Times Limited. Redistribution, copying, or modification is prohibited. EXPANSIÓN is solely responsible for this translation, and Financial Times Limited is not responsible for its accuracy.