Privatisation: consultants hire more consultants to bail them out (maybe)

(The final paragraph gives some perspective to the Capita boss’s upbeat message!)

The embattled outsourcing giant Capita is plotting a £700m fire sale of assets alongside a heavily discounted rights issue intended to raise a similar sum.

The new chief executive of the former FTSE 100 favourite is understood to be working on a more aggressive than expected review that could lead to the sale of six or seven businesses.

Jonathan Lewis, who overhauled the oil services company Amec Foster Wheeler, admitted in January that Capita needed a rescue cash call.

Delivering a profit warning that almost halved the market value to £1.1bn, Lewis said Capita had underinvested and relied on acquisitions to fuel growth.

The company has contracts ranging from army recruitment to customer services for Tesco Mobile [and BIG contracts with local authorities such as Barnet where they run just about everything]. It is wrestling with a debt pile that totalled £1.2bn at the end of last year and a reported £381m pension deficit.

Capita has hired the consultancy McKinsey & Co to work on its strategy and Bain & Co to help scythe through costs.

Lewis said in January that two businesses would be sold — Constructionline and ParkingEye — as part of non-core disposals. It is understood Capita has now identified six or seven businesses, worth up to £700m, that could be sold in stages. With the rights issue, this would allow Capita to raise up to £1.4bn of fresh capital. The company has had more than 120 approaches from potential bidders interested in its offshoots.

Capita has delayed publishing its 2017 results until it finalises the rights issue, which could be launched within weeks. Lewis is expected to reveal a cost-cutting plan that will strip hundreds of millions of pounds from its overheads.

The turnaround drive comes amid a toxic climate for outsourcing companies, illustrated by the collapse of Carillion in January.

Interserve is trying to refinance its £513m debt. The share price leapt last week on hopes that a deal with lenders may be agreed within days.

Lewis has insisted Capita is not in the same position as Carillion, pointing out it has £1bn of cash and bank facilities. Its shares closed last week at 168p. A year ago they were trading at 518.6p.

● Advisers to Carillion were handed £6.4m just before its collapse. Law firms including Clifford Chance and Slaughter and May and the investment bank Lazard were among the firms that were paid fees on January 12, an inquiry by MPs has found. Carillion went into liquidation 72 hours later.”

Source: Sunday Times (pay wall)

One thought on “Privatisation: consultants hire more consultants to bail them out (maybe)

  1. So, by getting paid 3 days before they went into liquidation, they get paid in full whilst other creditors have to share in a smaller pot (likely to pay out pennies in the pound if they are lucky).

    Just what leverage did these three companies have that enabled them to squeeze payments out when cash-flow was obviously so tight that everyone else was not getting paid?

    I would imagine that this was one of these rare cases where it isn’t WHO you know, and much more WHAT you know?


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