Capita is to acquire Tribal’s health and government divisions for £15.8m on a cash-free, debt free basis, including a deferred consideration of up to £2.5m. In the year to 31 December 2010, the divisions had combined operating losses of £2.7m, before goodwill impairment and exceptionals of £55.8m, on a turnover of £70.8m (down from £94.1m the year before).
As we predicted (see Tribal FY10 slumps), Tribal’s worsening financial situation has led to the sale of its Government and Healthcare businesses, and Capita is the buyer - ‘warts-and-all’. Tribal’s Government business primarily provides consulting services to government clients in the UK, notably in home and foreign affairs, local government and social housing. The Healthcare business provides a range of services to the UK healthcare industry from strategic advice to managed services.
As well as strengthening its consulting capability with the government business, Capita plans to use Tribal’s expertise in healthcare to support its strategic goal of providing support services to GP commissioning consortia. We’ve flagged this up as an area of opportunity before (assuming the government’s NHS reforms go ahead more or less as planned). By adding services like invoice validation and health needs assessment to its other capabilities (e.g. in HR, payroll, IT & estates), Capita will be well placed to offer a ‘one-stop-shop’ of support services for nascent GP consortia. In the meantime, however, Capita has some considerable work to do to knock Tribal’s loss-making Government and Health businesses into shape, and return them to profit.
Indeed, it’s not surprising that Tribal’s Board are unanimously recommending Capita’s offer. Tribal will use the net cash proceeds (£12.5m) to reduce its indebtedness and then focus on the remaining education and training business. The Education Business is the largest of Tribal’s three divisions and it is profitable and growing. In FY10 it reported revenue of £106.6m and an operating profit of £14.6m. But for Tribal too, the disposal is far from the end of the story – we can expect further cost cutting in the remaining business once it’s completed. If all goes to plan, the Education Business, which currently sits in sixth place in our UK SITS Education rankings, should be stronger as a result.