Will Xchanging’s Acquirers Keep the Procurement Business? Capita Might

A couple of weeks back, I interviewed Ken Lever the CEO of Xchanging and Jim Reesing, global sales and marketing director. Lever is stepping down at the end of the year and we talked about the future of the procurement division, which is being broken up into two parts and moving into other divisions following the problems with an "onerous contract" announced in the recent half-year results.

I asked them whether they had considered selling the procurement business, given it seemed to be causing some problems. No they said, it had a future within the firm. What I didn't ask them was anything about selling the whole business, more's the pity!

We intended to publish the interview as part of our subscription service, and do a shorter version here. But just as we were about to publish, on Monday last week, Xchanging received two takeovers bids, from UK-based outsourcing giant Capita and a US private equity firm Apollo Global Management. Capita bid 160p and Apollo 170p, which compared with a share price before the bids of around 100p. However, we should note that the company was floated in at a price of 230p!

We now wait to see if Capita will raise their bid, of if anyone else will come into the fray. Xchanging's strong position in the insurance market, particularly with the Lloyds of London market, is seen as the crown jewels for the acquirer.

So, back to our interview, you can read it in full here on the US Spend Matters site. My colleague Jason Busch then published this interesting post suggesting that the acquirer may well choose to sell off the procurement elements of the business - outsourcing plus the MarketMaker4 (MM4)sourcing platform and Spikes Cavell spend analytics business. Here's Jason:

"The potential of that business, however, seems an afterthought to potential acquirers including Capita and Apollo, which are placing primary consideration on the value of the firm’s back-office and automation-related insurance assets. Given this, we would suspect that current or future shareholders would likely find greater value in splitting apart the procurement business from the whole".

I suspect he is right in the case of Apollo. But if Capita win, I would not be surprised to see them keep the procurement business. They are a player in procurement outsourcing, although it is largely public sector clients, particularly in the local authority world, where they usually pick up procurement as part of a wider finance and back office outsource. They are also becoming more of a software and service business, based on some other acquisitions, rather than pure services outfit. So Xchanging's procurement outsourcing customers would be a good base for Capita to really push that product, and even MM4 and Spikes might look attractive.

Watch this space - we will be keeping a close eye on events.

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