(Adds sale options for Northgate NGA)
By Pamela Barbaglia and Anjuli Davies
LONDON Aug 19 U.S. private equity firm KKR
has appointed Rothschild to sell the public
sector division of its software firm Northgate Information
Solutions, two sources familiar with the situation
The company will be auctioned to private equity firms later
this year and could be worth around $600 million, the sources
Northgate Public Services (NPS), whose clients include
Britain's police, local government agencies and the National
Health Service, is the smaller of two divisions within Northgate
The other is NGA Human Resources (formerly known as
NorthgateArinso) which focuses on human resources software for
clients across Europe, the United States and Asia.
The sale of NPS comes after its main rival in Britain,
Civica, was acquired by Canada's OMERS Private Equity for an
enterprise value of 390 million pounds ($648 million) in 2013,
representing slightly less than 10 times its core earnings, one
of the sources said.
A combination of Civica and NPS was initially explored last
year when Civica's former sponsor 3i hired Rothschild to find a
KKR, which was in turn advised by JPMorgan, was interested
in merging the two companies under a new private equity investor
but talks fell through, partly because such a combination would
have triggered an antitrust review, said the second source who
can't be named because the matter is confidential.
PRIVATE EQUITY INTEREST
While a combination with Civica remains a possibility, other
private equity funds active in the sector have already expressed
interest in NPS, the first source said, adding that only a
"handful of industry players" would be well-placed for a tie-up.
NPS expects to generate turnover of 195 million pounds
($324.4 million) in the financial year ending April 2015 with
core earnings of 50 million pounds, the first source said.
That compares with revenue of 168.9 million pounds in the
2013 financial year, up 5.8 percent from the year before
according to the annual report of parent company Northgate
Information Solutions. Adjusted EBITDA from continuing
operations grew 5.4 percent to 39.3 million pounds in 2013.
NPS aims to increase its revenue growth pace to an annual
7-8 percent, the first source said.
Two bankers familiar with the sector said KKR was also
examining a combination of Northgate's human resources software
unit NGA with U.S. rival Ceridian. Ceridian is active
in the UK, where it provides payroll software.
However, the first source said there was more work to be
done on NGA before it was ready to sell and the disposal of the
other business was KKR's main priority.
The NGA division is moving from a software license-fee sales
model to a cloud-based software-as-a-service (SaaS) model and
needs to revive growth after its revenues declined in recent
years, the sources said.
NGA's clients include Irish airline Aer Lingus
and Italian tyre maker Pirelli, and it is expanding
into new markets such as China.
The division reported revenue of 523 million pounds for its
financial year ended April 2013, down from 549.8 million pounds
the previous year. Adjusted EBITDA rose 6.3 percent to 104.4
Northgate, KKR and Rothschild declined to comment. JPMorgan
and Ceridian were not immediately available for comment.
KKR took Northgate Information Solutions private in 2008, in
a deal valuing the company at 593 million pounds. It
subsequently sold its managed services division to outsourcing
group Capita for 65 million pounds last year.
($1 = 1.0000 US dollars)
($1 = 0.6011 British pounds)
(Additional Reporting By Eric Auchard. Editing by Erica