Serco acquire Vertex UK public sector business

Serco announced yesterday their acquisition of Vertex Public Sector Limited, the UK public sector operations of Vertex Data Science Limited, for a cash consideration of £55.5m.  The acquisition brings some blue-chip (in public sector terms) clients to Serco, complementing what is already a strong area for them.

Major customers in local government include Westminster and Thurrock councils, and in central government include the Child Maintenance and Enforcement Commission (CMEC) and Job Centre Plus. Its 3,000 employees handle approximately 4.5 million citizen interactions a year.

Vertex was originally developed as a business within United Utilities (UU). UU grew out of North-West Water, which expanded into electricity distribution then other different activities, including Vertex. Once lots of executives had got rich from the growth strategy, a new bunch did the same by selling bits off and retrenching back to being a pure water company again. UU tried to offload Vertex for years, finally doing so in 2007 to private equity investors. (The first Chair of Vertex post that deal was Sir Peter Gershon – a name well known to public sector procurement people!)

Vertex has always had a decent reputation, particularly in Utilities and call-centre work, without ever quite breaking through into the Premier League of outsourced service providers (IBM, Cap Gemini, Accenture etc for BPO, and the likes of Capita, Serco and Babcock in the public sector).

It’s also interesting to compare the numbers in this deal with the recent SAP / Ariba deal – the price paid here is half the Vertex annual revenues of £110M as opposed to the 10X revenue SAP are paying for Ariba! Of course you can’t compare the sectors directly, but buying that level of revenue, and operating profit of some £8m, for £55M looks like a pretty good deal for Serco, given there should be synergies in terms of both costs and on the customer / revenue side.

We wrote recently about the prospects for UK public sector outsourcing, which we see picking up rapidly, outside central government at least. Serco are key players in this field, and this looks like a good move to strengthen their position further. It reduces the credible options for buyers however; which perhaps gives opportunities for some of the up and coming providers (e.g. Agilisys, Balfour Beatty) to muscle in on short-list public sector BPO tender opportunities…

And who knew that there was a rather excellent samba guitarist called Serco!
samba triste/chôro pra metronome

 

(Disclosure: I hold a few £’000s worth of Serco shares in my self-invested pension plan. Or maybe it's my wife's. Done better than my Rok, Southern Cross, Record plc or Wincanton shares anyway, some of my other “successes”… If you'd sold short all the shares I've bought, you'd be very rich).

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