Join our community of smart investors

Capita disposal hits regulatory snag

Capita continues to sell its non-core assets, and the completed sale of the Secure Solutions and Services unit has caught the CMA's eye
January 5, 2022
  • Capita SSS endures an enforced delay
  • Outsourcer set to make a loss on its other disposals

As part of its bid to sell £700m of non-core assets, outsourcing company Capita (CPI) had agreed the sale of its Capita SSS software business to rival NEC back in October in a deal worth £62m. The aftermath of the transaction has been slightly complicated by the intervention of the Competition and Markets Authority (CMA) which issued a stop order to prevent the merger of Capita SSS with NEC. The CMA said it needed time to assess whether there is a competition issue, though the regulator did clarify that its order does not inhibit the completion of the transaction. 

The CMA wrote to both companies on 21 December to pause the combination of NEC and SSS operations. Capita announced the completion of the sale on 3 January and has received payment. 

While at this point there is no suggestion that the CMA could ultimately veto the deal, the stop order effectively prevents any exchange of information or personnel between Capita SSS and NEC. So, to all intents and purposes, the NEC and Capita SSS merger is stuck until the CMA makes its decision. 

Capita’s urgent need for cash lies behind the disposal of what it deems to be non-core assets. Prior to this, Capita said it had raised a total of £643m towards the £700m sales target for 2021. That total also includes the announcement on Christmas eve that Capita had sold AMT Sybex to Jonas Software for £40m, (£23m upfront, with the rest of the payments staggered).

The timing of the announcement so late in the year may be related to the fact that Capita will book a loss on AMT Sybex of approximately £42m, having acquired the Irish software developer in 2014 for £82m. The impression of a fire sale is further reinforced by the fact that Sybex held assets at the time of its disposal of £77m.

To be fair to Capita, the company is not far away from completing its target for disposals. The shares remain deeply submerged and it is hard to see any immediate catalyst for improvement. Sell at 37.6p.

Last IC View: Sell, 36.5p, 6 Aug 2021