Capita confirms sale of ESS to Montagu

17 December 2020 3 min. read
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Following the sale of its legal systems division earlier in the year, Capita has confirmed the sale of its Education Software Solutions business. The firm had entered exclusive talks with Montagu Private Equity in November, and has now clinched a deal which reportedly values its education software wing at as much as £400 million.

Speaking on the news, Jon Lewis, Capita’s Chief Executive Officer, stated, “We are pleased to have agreed the sale of Education Software Solutions (ESS) to Montagu Private Equity after a comprehensive auction process… The sale will help us simplify by disposing of a standalone business, while the proceeds will help strengthen Capita’s balance sheet, as we build towards a more focused, sustainable business for the long term.”

Capita originally purchased its ESS business for £10 million, so a sale valuing ESS at up to £400 million represents a significant creation of value over Capita’s 25 years of ownership. However, recent reports 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.

Capita confirms sale of ESS to Montagu

With Capita reportedly still £1 billion in debt, the entire company itself was valued on the stock market at only £759 million in November – something which saw final-round bidders Bain Capital and Francisco Partners drop out of the running to purchase ESS due to what they saw as an overly hefty price-tag. The exit of the two private equity groups left Montagu Private Equity as the only remaining bidder – and one who was clear on only offering between £350 million and £400 million.

Part of the consideration agreed is for Montagu to assume liabilities such as working capital and debt worth £57 million. Montagu will also pay £298 million on completion, expected early in 2021, while an additional sum of £45 million will subsequently be payable to Capita once Montagu’s agreed investment in ParentPay has achieved regulatory approvals.

Proceeds from the transaction will be used to strengthen Capita’s balance sheet following a challenging 2020, while £50 million will be used to replace the remaining value of an asset-backed financing agreement, relating to intellectual property developed by ESS, which was entered into in 2012 with the Capita pension scheme. Meanwhile, ESS will formally be owned by Tiger UK Bidco, a newly formed company established by funds advised by Montagu, and will benefit from a new owner with the focus and means to support further investment and growth, as the business transitions to its next-generation cloud-native software.

The news comes after Capita’s revenues were hit hard by Covid-19. 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. 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.