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Capita has won a deal to form a joint venture (JV) with the Cabinet Office (CO), in which it will seek to commercialise the CO’s best practice management training tools around PRINCE2 and ITIL.
Capita will pay the CO £10m cash up front and then three further cash payments of £9.4m over the next three years to take a majority 51% stake in the new JV. The CO will hold the remaining 49%.
As far as we can tell, this is the first central government JV - the significance of which being that the intellectual property (IP) remains in the JV and isn't lost to the private sector partner. This is a good safety net if things go wrong.
The JV is expected to grow revenue from £40m today to £120m by year 10, and also to generate ‘healthy margins’. CE Paul Pindar said the JV’s employees will share in a performance bonus pot of 5% of the JV’s pre-tax profits. Revenues are currently generated via royalties from training materials and fees from an 'ecosystem of training, examination and certification organisations', the majority of which are apparently SMEs. So the deal ticks an important box for Government, which is seeking ways to engage with SMEs and encourage more business with them.
Capita’s strategy will be to broaden the range of training products and markets to sell into - across the UK and worldwide. Of course, Capita will also seek to drive out costs and introduce technology. It plans to digitise services for instance and introduce 'experiential learning methods such as gaming and simulation'. So its new acquisition of G2G3 will come in very handy (see Capita acquires gamification player G2G3).
Capita is right to be targeting central government opportunities in this way that engage positively with SMEs. Over half of its civil service training contract is being delivered via a network of SME training providers (see Capita wins £100m+ Civil Service training contract). We attribute this focus to some of Capita’s recent successes (see Capita delivers 3% organic growth in FY12). But creating and growing broad SME ecosystems is going to add complexity into the mix. Capita will need to manage this side of the equation very carefully.