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Exclusives

FTSE 250-listed Capita eyes £500m sale of education software solutions division

Capita will look to sell its education software solutions (ESS) unit for at least £500 million, EducationInvestor Global exclusively revealed.

This publication learnt that the FTSE 250 firm was in advanced discussions with bankers from Goldman Sachs about selling Capita ESS, whose platform SIMS is reportedly used by 80% of UK schools.

Capita’s board convened virtually and greenlighted a sale of the unit, which is expected to launch as soon as July and close in the third quarter.

Capita confirmed the development in a statement after this publication broke the story, which resulted in the company’s share price climbing by more than 15%.

For Capita ESS, which generates EBITDA of around £50 million a year, auctioneers will target a priceto-earnings multiple of between 10 and 14, one source said – indicating that the business could fetch between £500 million and £700 million.

The company, which caters to 21,000 schools and 160 universities worldwide, will draw attention from trade buyers – such as Civica, PowerSchool and IRIS – as well as private equity funds, sources said.

One source described Capita ESS as the “crown jewel” of the parent company and said it is “one of the most cash-generative assets” that Capita owns.

Strategic consultancy McKinsey & Co has won a sell-side due diligence mandate, according to one source – though this could not be corroborated.

Capita, Goldman Sachs and McKinsey did not respond to requests for comment.

Capita SIMS, which stands for school information management system, is a back-end service developed in the early 1980s that allows schools to collect and monitor data on student attainment, parental engagement and financial management. It lists more than 50 products on its website.

Demand for school software solutions in the UK has grown in line with the increasing prevalence of multi-academy trusts (MATs), which require centralised systems to keep tabs on as many as several dozen schools’ finances and operations.

Meanwhile, the influence of local authorities wilted as the market consolidated, leading councils across the country to pare back, offload or wind down their education services divisions as school groups increasingly turned to private providers offering onestop solutions.

Capita SIMS was the first-ever management information system provider geared at schools.

Described by one source as having a “monopoly” on the UK school market, it is currently used by more than 21,000 schools in 49 countries, according to its website.

However, one source suggested that Capita SIMS is losing approximately 2% market share a year to providers such as Arbor, Bromcom, ScholarPack and Pupil Asset, which was acquired earlier this month by private equitybacked Juniper Education.

Several sources criticised Capita SIMS over its “legacy issues”, which developed as the decadesold company built out its suite of products and offerings, creating layers of “clunky” technology in the process.

Two sources said that Capita SIMS, which requires schools to store data on physical servers, has lost market share to cloud-based rivals, which created joined-up solutions that compile information more efficiently on centralised systems.

“SIMS’ data is held on individual servers within schools, meaning it can’t be analysed easily by MATs, whereas cloud-based solutions are designed to overcome this,” an insider said.

Capita SIMS unveiled a cloudbased solution for primary schools, SIMS Primary, in 2018, but its market penetration is understood to be limited in comparison to its flagship product.

Changing providers can be a cumbersome and time-consuming process, because staff require re-training and data needs to be migrated – which is why, according to sources, many schools renew their contracts with Capita SIMS rather than switching.

Though Capita SIMS has won several industry awards, its origin is marred by controversy.

In 1982, the firm’s founder Philip Neal wrote a programme allowing teachers to produce computerised pupil reports that was later developed using funds belonging to Bedfordshire council, which ultimately transferred the assets to a private holding company.

Former Labour MP Margaret Moran described this as using council resources to effectively set up a private business.

Rival provider Bromcom has on three occasions referred Capita SIMS to the now-defunct Office of Fair Trading.

In a complaint filed in 2009, Bromcom alleged that Capita SIMS had overcharged UK schools by £75 million over a 10-year period – but the OFT declined to investigate.

Exclusives

Singaporean wealth fund invests €350m in Inspired Education, valuing school group at more than €3bn

GIC, a Singaporean sovereign wealth fund, has invested ¤350 million in Inspired Education, cashing out private equity group Oakley Capital in a deal that valued the premium private school operator at ¤3.05 billion, EducationInvestor Global exclusively revealed.

The fund, which manages investments on behalf of the Singapore government, took a 15% stake in Inspired Education in April – less than a year after it came up against Warburg Pincus in a bidding process that saw the buyout house acquire 16% of the firm at a ¤2.2 billion valuation.

GIC’s investment saw Oakley Capital, one of the first private equity funds to buy into Inspired Silverfleet Capital will retain ownership of Lifetime Training for up to three years after abandoning a sale of the apprenticeship provider whose revenues have been decimated by the pandemic, EducationInvestor Global exclusively revealed.

Three sources familiar with Silverfleet Capital’s strategy told this publication that the London-based buyout house has called off the auction of Lifetime Training, which was being overseen by advisors from Houlihan Lokey, an investment bank.

One source said that Silverfleet Capital “definitely plans to hold

Education, divest its entire holding in the school group, which caters to more than 50,000 students worldwide.

Oakley Capital, which once owned a 35% stake in Inspired Education but reduced this gradually as new investors came on board, confirmed the divestment in an announcement on its website, but did not name the new investor.

Sources said that, before the Covid-19 pandemic struck, Inspired Education had forecast earnings before interest, tax, depreciation and amortisation (EBITDA) this year of ¤150 million. This suggests that GIC paid a price-to-earnings multiple of around 20 for its stake. onto it for another three years” to “restore profitability” that has been eroded by Covid-19, which forced the firm to close its centres indefinitely and furlough some 1,400 staff. Two other sources confirmed the three-year horizon, while another suggested that 12 to 18 months was “more realistic”.

Most of Lifetime Training’s clients are in retail and hospitality – industries arguably among the hardest hit by a crisis that hammered high street footfall while forcing bars and restaurants to cease trading indefinitely.

The deal has not been revised in light of the coronavirus crisis, this publication understands.

It is understood that GIC first began looking at Inspired Education in 2017, when the company had sought fresh growth capital. TA Associates, a private equity house, fended off competition from GIC and other suitors, and eventually took an undisclosed stake in the company, which it still owns.

Because GIC had already undertaken due diligence on Inspired Education during previous fundraising processes, the fund began a “limited” analysis at the end of January and was ready to agree the transaction several weeks later, a source said.

“There could hardly be two worse sectors to specialise in [at present],” said one source. The UK government has signalled that bars and restaurants could begin to reopen in July but is yet to commit to a date.

The development came just eight weeks after this publication reported that a chorus of private equity investors, which included KKR and CapVest, had tabled preliminary bids for Lifetime Training, which had been marketed on EBITDA of £20 million.

It is an example of how private equity funds may have to extend

Shareholders in Inspired Education, which operates more than 60 schools across nearly two dozen countries, also include its founder and chief executive, Nadim Nsouli, and South Africa’s Oppenheimer family.

The organisation traces its roots to South Africa, where Reddam House, an esteemed independent schools group that was the first to be acquired by Inspired Education in 2013, is situated.

It is understood that capital provided by GIC, which manages more than $100 billion of assets in over 40 countries, will help fund Inspired Education’s global acquisition strategy, as well as

Lifetime Training’s private equity parent scraps auction and will keep business for up to three years

greenfield developments. holding periods that typically last around five years as a result of Covid-19 to eke out enough profits from affected businesses to satisfy their managers and investors.

Silverfleet Capital and Houlihan Lokey declined to comment.

Silverfleet Capital acquired Lifetime Training from rival mid-market private equity group Sovereign Capital in 2016 for between £115 million and £120 million. At the time, Lifetime Training recorded pre-tax earnings of around £11 million.