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BPS market leader Capita making its entrée into the legal services market with the acquisition of the English business of Optima Legal Services Limited (Optima Legal), including its subsidiary Cost Advocates, for an undisclosed sum. Capita said it is now going to launch a new division called Capita Legal Services to provide legal services for lender, insurance, government, legal, and corporate markets.
Capita’s move follows insurance BPS rival Quindell Portfolio, which has acquired several legal services firms to provide an end-to-end BPS offering to the insurance market (see here). Like Quindell, Capita’s deal is subject to approval by the Solicitors Regulation Authority and gaining an alternative business structure (ABS) licence, something that took Quindell 11 months to achieve (see Quindell finally gets SRA approval).
When it does complete, Optima Legal will create a 600 person strong legal services team in Capita, with 150 legal personnel and 50 solicitors. It will also add to Capita’s fledgling legal BPO presence in Poland where it provides services like legal document cataloguing for Pinsent Masons.
This deal marks a major shift by Capita into a new professional services market, where there are potentially high margin returns. Over time, this should help balance some of the other lower return areas it is being drawn towards, such as IT-enabled support services for the public sector, in competition with the likes of Serco and G4S, where contracts are putting downward pressure on margins (see Capita bags electronic tagging deal).
General insurance is one area Capita will hope to benefit from the deal, where it has been outperformed by Quindell and The Innovation Group. Capita's insurance revenue was down 19% in H113, making it by far the worst performing division across the group (see Capita delivers robust first half (update)). We would however caution against it following Quindell's as yet unproven market strategy.
Optima’s focus across a much wider range of verticals should provide plenty of other opportunities for Capita to cross-sell and up-sell legal services across its broad portfolio. We watch with interest if Capita’s move spurs further legal services consolidation within the UK BPS market.