Capita in exclusive talks with Montagu over potential sale of ESS

02 December 2020 3 min. read

Following the sale of its legal systems division earlier in the year, Capita has confirmed it has entered talks to sell its Education Software Solutions business. The firm is still mooting the sale of its Education Software Solutions wing, as it looks to strengthen its balance sheet amid the pressures of the coronavirus crisis.

Describing the start of 2020 as a “challenging six months” in the firm’s half year results, Capita reported a loss before tax of £28.5 million – a startling contrast with its first half results in 2019, where it enjoyed a £31.2 million profit. According to Capita’s release on the situation, profit was so significantly affected that, coupled with the delay in the return to growth resulting from the current global recession, it believes it may not generate sustainable cash flow for as long as two years.

The professional services firm, which had just come through one dramatic turnaround before the coronavirus pandemic hit, has already been working to offset the losses. As part of the company’s “robust response” to Covid-19 – in which over 50,000 employees worked remotely and 4,400 were furloughed at peak – the firm announced it would axe at least 200 jobs in June. Meanwhile, the firm moved to hasten its simplification of its portfolio, accelerating strategic its focus on a portfolio of software capabilities aligned to Capita’s core services and vertical markets.

Capita in exclusive talks with Montagu over potential sale of ESS

This resulted in the sale of Eclipse Legal Systems in June, and also the placing of its Education Software Solutions (ESS) wing on the market. The sale of its legal systems division to Access Group reportedly generated an enterprise value of more than £56 million, however Capita has reportedly struggled to follow that up with a substantial second sale.

A report in The Times claimed there was talk of the number of interested parties running into double figures and a sale price of more than £500 million. However, with the company reportedly still £1 billion in debt, Capita itself is valued on the stock market at only £759 million – and news service Mergermarket subsequently confirmed that final-round bidders Bain Capital and Francisco Partners had dropped out of the running due to the hefty price-tag. The exit of the two private equity groups left Montagu Private Equity as the only remaining bidder.

A statement from Capita on the evolving matter read, “Capita today notes media speculation regarding the potential sale of its ESS business. Capita confirms it has entered into exclusive talks with Montagu over the potential sale of ESS. There can be no certainty that a sale will be concluded nor any certainty over the terms of any such sale.”

However, Mergermarket also reported that Montagu was looking at offering only between £350 million and £400 million. This would represent a significant mark-down, and experts speculate it could well leave Capita in need of a further cash injection.