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Capita raises funds to fuel further M&A

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Capita logoOn the back of a reasonably upbeat Q1 trading update, UK BPO leader, Capita, is to make a dash for cash by selling 40m new shares in an institutional placing to raise (we assume) somewhere near £280m. The cash will be used to capitalise on a ‘greater number’ of M&A opportunities that have emerged since the company announced its FY results in February (see Capita ‘ups and downs’ in 2011). CEO Paul Pindar is also taking the opportunity to sell 400k of his own shares ‘to satisfy a personal settlement’. Putting this placing in some sort of context, Capita has also engaged in many share buy-backs over the years, purchasing 113m shares since 2003 at an average price of 499p a share. However, the last year in which Capita engaged in buy-backs was 2010, when the average price paid was 751p. Capita’s share price has fallen 5% to 690p on the news.

Pindar previously expected to make fewer acquisitions this year as Capita returned to organic growth (see Capita emerging from a lean spell). But Capita has acquired six companies so far in 2012 for £91m, in cash with employee benefits consultancy Bluefin Consulting and healthcare insurance provider Aviva UK Health being the largest (see here). Pindar now expects to spend at least this much again over the rest of the year.

Capita’s Q1 revenue was up 17% on this time last year, mainly due to the acquisitions it made in 2011. It has also won 12 deals worth £900m vs. 7 contracts worth £313m this time last year (and £2bn in FY11 overall). The £440m Army recruitment contract (see here), and Civil Service training contract (see here) will add to Capita’s organic growth this year.

The bid pipeline in February 2012 was more or less flat at £4.6bn – with central and local government the key opportunity areas. Renewals however are increasingly difficult to secure (see Second generation BPS deals: supplier challenges and opportunities) – and Capita’s rebid at the Criminal Records Bureau is currently up for grabs. This is unlikely to be a straight forward shoe-in.


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