Capita to raise fresh equity for bolt-ons, debt reduction

Business process outsourcing and professional services group Capita is proposing to place 40m new ordinary shares to raise additional capital to make further bolt-on acquisitions and pay down debt.

The firm as already spent £91m in the year-to-date and anticipates spending at last the same again in the rest of the year through bolt-on acquisitions. Meanwhile, it has £1,176m of private placement debt of which £123m matures between now and August 2015 with the remainder gradually maturing until 2012. The group raised a further £285m of bank debt in February under a two-year loan facility.

Since 2005, Capita has spent a total of £1.3bn on buying businesses, including £642m in the two years to December 31st 2011 "all of which have been funded without recourse to shareholders".

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The company said that its aim is to keep the ratio of net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) in the range of 2-2.5. In its full-year results announcement in February, the net debt-to-EBITDA ratio had increased to 2.5 due to acquisitions in 2011 and higher working capital requirements.

Capita said that it expected acquisition activity to reduce this year but says that the "current acquisition environment continues to offer a rare opportunity to broaden the business".

"In order to pursue the increased pipeline of value enhancing bolt-on acquisitions and allow the company to maintain a prudent yet efficient balance sheet, the board considers it appropriate to raise fresh equity." The placing represents 6.5% of the company's existing issued share capital.

Alongside the placing, Chief Executive Paul Pinda is selling 400,000 ordinary shares to satisfy a "personal settlement" but has assured that he has no intention to sell any further shares in the near term.

Acquisitions drive first-quarter growth

It seems like that group is making a good case for the placing after saying in a separate statement that last year's acquisitions were the primary driver of a 17% year-on-year increase in revenue in the first quarter.

Bidding for new contracts has also been successful with the group winning £900m of major sales opportunities in the first 16 weeks, compared with £2bn in 2011 as a whole.

The company says that major contracts won and acquisitions completed in 2011 provides it with good visibility of stronger revenue growth in 2012.

BC