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Capita and private equity biz circling, sniffing around Xchanging

Synergies... yes, we'll find a few. '£35m' worth - Crapita

What a place employees at troubled Xchanging find themselves this morning: both Capita and private equity firm Apollo Global are bidding to buy the LSE-listed tech biz.

The insurance market BPO specialist and software provider confirmed to the City this morning it has permitted both businesses to look under the hood.

Xchanging said Capita presented management with four offers starting at 140 pence on 11 August and culminating in a 160 pence bid on 24 September - the latter values the equity at a little under £400m.

At the same time, asset management outfit Apollo Global - whose portfolio is largely comprised of subordinated or mezzanine debt - has proposed 170 pence per share, valuing the subject of its affections at £420m.

“There can be no certainty that any offer will be made, nor as to the term of any such offer,” Xchanging said in a statement to the stock exchange.

Xchanging hasn’t been in a happy place this year; the acquisition of Agencyport in July ’14 was delayed for several months by the Competition and Market Authority and converting contracts to its product lines has been slow.

And in the BPO unit, contractual woes in the procurement division led to a profit warning some months back. The company also confirmed a change at the top of the exec tree just weeks ago.

Capita said today that under its stewardship, it could find “at least” £35m worth of “cost synergy benefits driven by head office, share services and IT efficiencies”.

Apollo has yet to make a public statement.

Ian Spence, CEO and founder at tech analyst Megabuyte, said Xchanging’s software business “lacks a clear product strategy and is losing ground to competitors”, and the BPO side of the house has its “fair share of issues”.

“Against this background, either of those offers would be a great result for Xchanging’s shareholders . While the exit valuation for either offer may look quite low, it should be seen in the context of port cash flow dynamics”.

Xchanging’s share price jumped nearly 60 per cent on today’s buy-out talks and is trading at around 170 pence, so it looks like the bidding may be far from over. ®

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