Capita PLC (LON:CPI) has confirmed that it is in negotiations to sell its Education Software Solutions (ESS) arm, a move crucial for the company to slash its debts.

The outsourcing group said it was putting the division up for sale earlier this year, but any disposal would require a shareholder vote and approval from its lenders.

READ: Capita highlights earnings resilience as cost savings offset pandemic revenue hit

Exclusive talks are underway with European private equity firm Montagu over the potential sale of ESS, the FTSE 250-listed company told investors on Friday.

Speculation in the media has put a valuation of GBP500-700mln on the ESS business, which would be 10-14 times underlying profits (EBITDA).

“There can be no certainty that a sale will be concluded nor any certainty over the terms of any such sale,” it added in a statement.

Capita has said that it will use the proceeds from disposals to strengthen its balance sheet by reducing net debt and pension liabilities, having sold Eclipse, a legal process software product, sold for GBP56.5mln in the first half of 2020.

Shares in Capita, which collapsed more than 70% in March after management warned that its efforts to restructure were proving tougher than expected, climbed 5% in early trade on Friday but were soon flat again at 44.78p.

Broker Peel Hunt said the sale “could be crucial in reducing net debt and leverage to acceptable levels”, with December 2020 net debt estimated to be around 3.4 times EBITDA, versus the current bank covenant of 3.5 times.

“But Capita has a number of levers to pull in order to avoid a breach,” the Peel Hunt analysts said, calculating that a sale in the speculated range could reduce December 2021 net debt/EBITDA to parity from current forecasts of 3.0x.

–Adds shares and broker comment–

Leave A Reply

Please enter your comment!
Please enter your name here