Capita grabs Northgate arm in bargain basement buy

Analysts brand outsourcing giant's £65m purchase of Northgate Managed Services a relative steal

Outsourcing giant Capita has made another big-ticket IT services acquisition, grabbing Northgate Managed Services (NMS) at what has been branded a knock-down price of £65m.

One of three units of Northgate Information Solutions, NMS boasts 1,000 employees and specialises in cloud, infrastructure and managed services. For the year to 30 April the Northern Ireland-based outfit posted an operating profit of £10m on sales of £141.6m.

Capita is paying less than half of NMS's turnover to get its man, with the deal comprising £22m in cash and the assumption by Capita of a pension deficit and finance leases for equipment of £43m.

Capita endured a bumpy 2012 as 400 staff were cut from its IT services business, chief executive Mark Quartermaine left mid-year after just six months in the job and staff threatened to take action over the prospect of offshoring work to India.

Capita chief executive Paul Pindar claimed the two businesses are a good fit.

"By combining NMS's managed IT services with Capita's complementary business process and IT outsourcing capabilities, Capita will enhance its offering to clients and enable them to transform the way they do business," he said.

Analyst TechMarketView said the £65m sum represents a "knock-down price" for Northgate, which appears to be in the midst of a breakup under its private equity (PE) backers.

"The sale confirms our view that PE backers KKR have been viewing Northgate's three businesses – Northgate Public Sector (NPS), Northgate Arinso (NGA) and Northgate Managed Services (NMS) – as a ‘divide-and-sell' opportunity," said TechMarketView analyst John O'Brien.

NMS is just the latest in a long line of IT services purchases for Capita, with other recent conquests including Computerland for £28.9m in 2008 and Ramesys for £15m in 2010.

In 2009, Capita shelled out £75m for networking and managed services specialist Synetix – £10m more than NMS, despite Synetix boasting a comparable operating profit of £10.9m and a much lower turnover of £73.7m.

In a Q4 trading update in November, Capita said it had achieved a "strong sales performance to date" in 2012 with major contract wins totalling £1.7bn.