The markets were perky again yesterday as the FTSE gained 1% to 5,718 and the Megabuyte Leaders Index ended up 0.2% to 845.9. However, weaker than expected revenues and negative comments on current trading from Oracle overnight are likely to weigh on sentiment this morning. The NASDAQ ended the day nearly 2% lower at 2,281.
Civica follows Northgate in bid to go private with 3i
The management team of Civica, which supplies software and services to the local authority and housing market has launch a 270p per share all share cash bid for the company backed by 3i. The bid represents a 34% premium to last night's closing price and values the company at £190m. The bidco has irrevocable undertakings 41.5% of Civica shareholders.
First thoughts: Stock market interest in Public Sector IT companies seems to be inversely proportional to that of private equity. Valuations for the PSIT sub-sector are amongst the lowest in the SCS sector and yet most of the suppliers offer stability and strong cash flow - attractive attributes for private equity. The parallels with Northgate are interesting. As well as being competitors in the PSIT space, both companies announced initial private equity interest a year before the eventual bid. In June last year, Civica revealed that it was talking to a private equity firm (widely rumoured to be Alchemy, the investor that took the company private) but the deal came to nothing as the debt markets tightened. Since then, Civica's share price has slipped from 275p to 200p which has clearly made private equity deal more attractive, even with the required premium.
The 270p take-out price values Civica on 12.7x current year earnings which is almost bang in line with the Megabuyte 50 Index of which it is a constituent. Given the state of the markets and Civica's fall from investor favour, this looks like a good deal for shareholders. On a wider note, with Northgate and Civica in the hands of deep pocketed private equity players, it will be interesting to see what happens to the three other listed PSIT players. On that point, it is also interesting to note that the statement specifically says that 3i will provide further capital for growth. Anite's public sector business is currently for sale and, we understand, is also doing the rounds of the private equity community. It's not beyond the bounds of reason that 3i might look to acquire one of the other large players. They have proved their appetite to do this kind of large scale roll up with Telecity, with has made them a great deal of money. In addition to Anite, targets could include IBS OpenSystems which has stumbled recently and IDOX, which is the only one of the quoted players that seems to have any momentum at present. On thing seems certain, more change of ownership in PSIT looks like a certainty.