Local government business process services (BPS) provider Liberata is attempting to re-emerge from the shadows quietly adding two recent acquisitions. Funding for the deals was provided by Liberata's private equity parent EndlessLLP (see Liberata under new ownership), although the sums involved weren't disclosed.
The first and largest deal, made last month was for Coventry-based Trinity Expert Systems, a Microsoft Gold Partner in managed services employing 340 people. Trinity gives Liberata additional capability in areas around desktop services, infrastructure, professional services and also cloud-based services such as infrastructure and desktop-as-a- service.
The second, deal made earlier this month, is for online collaboration platform Knowledge Hub, which is widely used by public sector employees and public bodies – apparently including 260k local government employees. Knowledge Hub is transferring across to Liberata’s on-demand revenues and benefits service Capacity Grid (see UK BPS Suppliers and Ranking, 2013), which is where Liberata is placing its bets for the future.
The rationale behind the deals makes some sense. Adding new IT and desktop services capability to Capacity Grid should help to draw in more business, and the Knowledge Hub should also help increase its visibility in the target local government market.
However, the problem with Capacity Grid is lack of visibility on revenue. The service now claims 138 ‘members’, which is up from 80 in FY12. But because it is ‘on-demand’ Liberata won’t be generating revenue from all of these members continually, which makes it an inherently risky proposition.
A look at Liberata's numbers proves the point. Liberata said it now has turnover in excess of £86m - we are assuming this is on a rolling twelve months basis, since in its last full year ended 31 December 2012, revenue was £90.6m, down almost 10% on the previous year. Based on these numbers, we can assume that the decline from Liberata’s underlying business continues. The combination with Trinity is expected to boost the top line in ‘excess of £100m and EBITDA of more than £10m’.
The big question is whether or not these acquisitions can stop the rot in Liberata's underlying business.