Support services and BPS giant Serco has sold its Technical Services (TS) consulting business to engineering and project management support services provider AMEC for £137m in cash. TS provides consulting, project services and software to the UK civil and nuclear defence markets, including the majority of UK nuclear sites, but CE Chris Hyman sees this as no longer core to Serco’s business.
It’s clear that the TS business wasn’t achieving under Serco’s ownership. Even though the price paid by AMEC is almost two times TS’ FY11 sales of £70m, and 10.5x adjusted operating profit of £13m, Serco will actually net £60m as profit on the sale after taking into account goodwill and disposal related costs. Serco said the sale will actually have a small dilutive effect on adjusted group earnings. Not the best news to follow Serco’s H1 organic revenue warning last week (see Serco warns on H1 organic growth).
So why the exit? Serco’s focus is on long-term services-based contracts, and consequently, specialist consulting and project work does not give it the certainty on revenue or profitability that it is looking for. Serco's recent launch of a Global Services BPO operation (see here) and acquisition of Vertex Private Sector (see Serco pays £55m for Vertex Private Sector (update)), shows that its focus is shifting on to IT-enabled business process services (BPS), where there is better long-term visibility on revenue and margins.
It begs the question whether TS is the first of more disposals to come by Serco where it has concluded opportunities for long-term service-based contracts are unlikely.