Capita plc today announces that it has agreed to sell its Education Software Solutions (‘ESS') business to Tiger UK Bidco Limited, a newly formed company established by funds advised by Montagu Private Equity (‘Montagu'), in a deal that values ESS at up to £400m.
ESS is a standalone provider of management information system (MIS) and related software for the education sector.
Part of the consideration agreed is for Montagu to assume liabilities such as working capital and debt worth £57m. Montagu will pay £298m on completion, expected early in 2021.
Montagu has also agreed to invest in ParentPay (Holdings) Ltd (‘ParentPay'), a provider of education technology. Following successful completion of both investments, ESS will become part of the ParentPay Group.
An additional sum of £45m will subsequently be payable to Capita once Montagu's agreed investment in ParentPay has achieved regulatory approvals.
The total enterprise value of the ESS disposal is up to £400m. Proceeds from the transaction will be used to strengthen Capita's balance sheet and £50m 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.
The sale of ESS is a Class 1 transaction and is conditional on the approval of Capita's shareholders, with a circular to be posted in due course, including a timetable for a General Meeting, expected to be held in January.
The gross assets of ESS and the reported profit before tax for the year to 31 December 2019 were £96.2m and £52.7m respectively.
The ESS senior management team will be transferring with the business. As previously announced, the process to sell ESS followed a strategic review of the Software division, after which we decided to focus on a portfolio of core capabilities better aligned with and which support our consulting, transformation and digital BPO services, and the vertical markets of the rest of Capita.
We will retain software assets that are catalysts for growing our other services, but plan to dispose of standalone software products that have little overlap or cross-sell with the rest of Capita, such as ESS.
Further disposals of other standalone businesses across Capita will be announced in due course as we continue to simplify and strengthen the business.
Jon Lewis, Capita's Chief Executive Officer, said: "We are pleased to have agreed the sale of ESS to Montagu Private Equity after a comprehensive auction process.
"ESS is a business that Capita originally bought for £10m so we have created significant value over 25 years of ownership.
"We announced our intention to sell ESS earlier this year, as part of our strategy to simplify and strengthen Capita.
"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.
"At the same time, our colleagues at ESS 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."
Capita is being advised on the transaction by Goldman Sachs International, and Barclays Bank PLC, acting through its Investment Bank, is acting as sponsor.