Capita to divest IBS Revenues & Benefits unit

The Competition Commission has published its final report on Capita’s acquisition of IBS and, unsurprisingly, it has announced that it is requiring Capita to divest the IBS Revenues & Benefits unit.

The report points to the several problems with the partial divestment of the R&B unit (Capita would be allowed to keep the Social Housing unit if it can achieve the partial divestment of the R&B unit), but has apparently obtained assurances from Capita that it will pick up any additional customer costs such as additional licensing costs and/or separation of an integrated IBS database into separate R&B and SH databases.

I would imagine that existing joint R&B/SH customers of IBS will not be too pleased about losing their single contractor, single point of contact and integrated database, but if Capita had been allowed to keep the IBS R&B unit, in the long run, perhaps Capita would have moved the customers off the IBS R&B product any rate, so the customers would have lost many of these benefits without the forced partial divestment.

There seems little doubt that the value of the R&B unit to purchasers will be reduced by the partial divestment, rather than a full divestment of the whole IBS business including the SH unit, but I suspect that Capita will much prefer such a partial divestment. Although the value realised will be less, and the partial divestment will be more time consuming and messy, given the likely smaller price tag, there are likely to be more potential purchasers – and, given the unknowns, I suspect that it will be some time before the divested unit becomes a forceful competitor again in the R&B market.

There is the risk that if a partial divestment is not achieved, the CC will require Capita to go down the full divestment route – a route that I’m sure Capita will wish to avoid at all reasonable costs. Although Capita has announced that it is “in early discussions with interested parties”, no doubt the due diligence and purchasing process will take several months, but it will be very interesting to see who the succesful purchaser of the IBS unit turns out to be .....