RE: Meeting1 Oct 2020 21:10
Published - 30th September 2020 - By Education Investor -
Notes Extracted by NoFear - From this website; EducationInvestorGlobal: www.shorturl.at/ftuBL
[Capita’s Education Software Solutions (ESS) unit and the private bidders UPDATE]
[PART 1]
Price expectations for a sale of Capita’s Education Software Solutions (ESS) unit have softened significantly after bidders baulked at bankers’ initial asking price of £500 million-plus, leading one to drop out, Education Investor Global can reveal.
This publication has learnt that Capita ESS, originally touted by bankers from Goldman Sachs at £500-£700 million, is likely to change hands for closer to £400 million due to extensive post-purchase costs to be incurred by an acquirer.
Multiple sources confirmed that TPG Capital, the US-based buyout house that had tabled a first-round bid alongside Bain Capital and Montagu Private Equity, has dropped out of the race to acquire Capita ESS.Sources said that Bain Capital and Montagu Private Equity have both been admitted into the second round of bidding for Capita ESS, whose SIMS platform is used by 80% of UK state schools.
So has Francisco Partners, another American private equity firm, which would look to acquire Capita ESS through its portfolio company Renaissance Learning, a cloud-based assessment, teaching and learning solutions provider to over a third of US schools.
But none of the suitors has so far shown willingness to pay at least £500 million for Capita ESS, two sources said, whose parent’s market capitalisation, at present, is only £497 million. It is “not very normal”, said an experienced deal-maker, for a carved-out company to be valued in excess of its owner.
There is “no way” that Capita will achieve £500 million for its ESS division, said one source close to the auction, pointing to SIMS’ “shrinking” market share and the post-takeover cost of modernising the antiquated platform, which runs on in-school data servers.
Another source suggested that “it will probably take two years” to get SIMS “back on the path to growth” and prevent it from losing further customers to cloud-based competitors such as Arbor and The Key – which are set to merge this month – BromCom and Juniper.
Both the insiders said that Capita ESS will trade at “closer to” £400 million than £500 million, with the former figure representing eight-times its annual earnings before interest, tax, depreciation and amortisation (EBITDA) of £50 million.
The pricing recalibration will deal a blow to vendor Capita, which had been slated to use the proceeds from a sale of its ESS unit to clear some of its debt, which totalled nearly £2 billion last year, during which it lost £64.2 million while revenue dipped 6% to £3.68 billion.
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