Tuesday, 11 March 2008

Capita buys Computerland. Why?

Capita has made a recommended 270p/£28.9m offer for Computerland. Computerland is a PC reseller with a managed services operation. It had revenues of £67m in the FYE 30th Apr 07. of which £18.6m is 'contracted'. Of the total, hardware and software resale made up £46m or c70%. Of the remaining £21m, hardware maintence was c£8m, project services c£3m and c£10m 'managed services'.

My (ex-) Ovum Holway colleague, Phil Codling, said "Life is full of surprises, but they rarely come from Capita". This must be the strangest acquisition I have seen from the UK BPO market leader. Paul Pindar sees the acquisition as extending the 'breadth and depth of expertise'; particularly in IT services. I completely agree that having a managed service operation is a pretty good bolt-on for Capita.

Anthony Miller (another ex-colleague) from Arete commented to me "Remember, Richard, they already use them for half their desktop procurement and saw the chance to make it 100pct. I was confused too at first but it does make sense so long as they can fix the margins. But it's very small revs compared to Capita anyway."

I too am not so sure about the low-margin majority reseller business bit. Maybe they will dispose of that bit? But, there again, Capita has hardly bought Computerland at a bargain basement price. Computacenter has a current market value of just £289m but revenues of c£2.3b equating to a PSR of 0.12. Capita is valuing the whole of Computerland at a PSR of 0.43. Put another way, if Computerland's reseller and maintenance business was worth 0.12 * £56m, that means the £10m managed service business would have to be worth £22m. Which is plainly ridiculous!

It is interesting how many AIM IT companies are being sold just before the new CGT regime comes into play. Ch and CEO, Graham Gilbert, owned 3.8m shares worth c£10m which, as he was the founder, probably cost 'nothing' (other than several decades of hard work, agnst etc.) By selling before 5th Apr 08, Gilbert has probably saved himself c£800,000 in tax. And I don't blame him for taking that 'once in a lifetime' opportunity. But it just adds to the 'unintended consequences' that Darling has let lose. Shame on him.

Footnote: Everytime I describe Capita as a tech or IT services company, either Rod, or now Paul, protest. "Capita is a business services company - don't want to be grouped in with companies like Misys".
I have to say, Paul, if you buy companies like Computerland this complaint is starting to look a bit thin!

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