Private equity eyes Capita’s card payments firm Pay360

PRIVATE equity firms are circling the payment services business put up for sale by Capita, one of the Government’s biggest contractors.

Capita’s Pay360 arm has been put on the block as part of a programme to offload non-core operations.

The sale has been under way for several weeks and is understood to be in its second round.

The asking price is north of £200million, which is close to half of Capita’s stock market valuation of £433million, sources said.

Shares in Capita are down a third this year despite efforts taken by the company to strengthen its balance sheet by selling smaller businesses and streamlining operations.

The company, which collects the BBC licence fee and handles London’s congestion charge, recently reported a plunge in half-year profits to just £100,000 from £261million a year earlier, blaming ‘weaker-than-expected returns’ from some of the sales and a £92.5million goodwill write-off.

Pay360 processes payments for public sector organisations including local councils and schools, and handles more than 255million card transactions worth £11billion for companies including WH Smith and mutual insurer Royal London.

Sources said it is forecasting around £12 million of profits before interest, tax and exceptional costs this year and £15million next.

Bidders are understood to include private equity players and private equity-backed UK software companies. Capita, advised by Barclays, has set a deadline for bids of early to mid-September.

Potential buyers may be eyeing a price lower than £200 million, partly due to Pay360’s exposure to government contracts, which account for around half of its revenue, one source said.

However, the business is viewed as ‘robust’ and recession-proof.

Capita sold off four businesses in the first half of this year, including Trustmarque for £118million in

May. It also sold AMT Sybex and Speciality Insurance.

In its half-year results, Capita said three disposal processes were ‘in progress’, including Pay360.

The company has made £223million from disposals so far this year, taking total proceeds from the disposal programme to more than £750million. Cash from disposals has helped it reduce its debt mountain to £710million, from £880million at the end of December.

Capita and Barclays declined to comment.