Buy-out group in approach to Civica

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Shares in Civica, the Aim-listed public sector software and services company, jumped 10 per cent Tuesday after it said a private equity group had made an unsolicited approach regarding a possible offer for the company.

Civica declined to name the potential bidder, confirming only that discussions were at an early stage and that the approach may or may not lead to an offer.

The announcement of a bid approach is further evidence of growing private equity interest in the UK software and services sector.

It follows Monday’s private equity-backed merger of Computer Services Group, the UK back-office software company, and Iris Software.

Hellman & Friedman, the private equity group, bought both CSG and Iris from Hg Capital, a mid-market private equity group, in a deal with an enterprise value of £500m.

“We’ll see much more of it in the coming months,” Jonathan Imlah, an analyst at Altium Securities, said, adding that he would be “very surprised” if a rival bidder did not emerge for Civica.

“The thing to do is gear it up and bulk it up,” he said, speculating that if Civica were taken private it might try and acquire Anite’s public-sector software business, which would deliver significant cost savings and raise profits.

“If you add a third party like Northgate, [the software and services company] it’s a slam dunk,” he said.

Civica could be particularly attractive to private equity as 50 per cent of revenues from its own software activities are recurring. It is also relatively low-geared and highly cash-generative.

Civica’s shares jumped 26p to 277p on news of the bid approach, which came as the company announced interim results.

The company’s shares have struggled since Simon Downing, chief executive, and Michael Stoddard, finance director, sold all their shares in the company on March 21.

Revenues in the six months to 31 March increased 11 per cent to £62.8m (£56.5m), helped by a good performance from its local government unit, including 27 new software contract wins with local councils

The company made a pre-tax profit of £910,000 (loss of £2.32m), aided by a solid performance from its education operations which supply library management systems.

Earnings per share were 0.2p (losses per share of 5.0p). The company plans to pay an interim dividend of 0.8p (0.73p).

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