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.
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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
