Image may be NSFW.
Clik here to view..jpg;150;38){kind=logo}
Capita is building up its support services capability with the acquisition of Reliance Secure Task Management (RSTM) for £20m in cash on the usual cash free, debt free terms. RSTM provides forensic medical services, custody support and secure transport services to clients such as the UK Border Agency, the Ministry of Justice, NHS trusts and police forces. It also provides medical assessments in the private and public sector, including those for the new personal independence payments (PIP). RSTM has c2,000 employees in Bristol, Heston and at client sites.
Capita is paying 0.3 times sales of £75m for RSTM, which made a pro forma operating loss of £5.7m in the 11 months to March 2012. It’s not often (if ever) that Capita acquires a loss making business. But it clearly sees the potential for cost ‘synergies’ in this deal being part of Capita’s larger, integrated services portfolio, since it is expected to return to profit in 2013.
RSTM is one of four divisions at London-based Reliance, the others being Reliance High Tech, Reliance Monitoring Services and Reliance Protect. Reliance is privately-held front line support services provider, and competes against the likes of Securitas, G4S and Serco. According to accounts filed with Companies House, Reliance made revenue of £251m in the year to April 2011 (vs. £381m the previous year) and a 2% operating margin. The revenue decline was mostly down to the disposal of its Reliance Security Services division to Securitas in November 2010.
For Capita the acquisition is clear step in the direction of these support services rivals, which have been winning BPS business in health (see Serco wins community health services deal) and Police in particular (see Lincolnshire Police signs £200m deal with G4S) - two markets where Capita is desperate to make inroads.
Capita is way down the list of players delivering front line support services into the public sector, as our soon to be published report on support services opportunities will show. The lower margins are however a threat to Capita’s profitability, which is already under pressure (see Capita on track, but problem areas need addressing), and there is no indication here as to what an acceptable margin will be from RSTM.
