KKR takes firm grip on Northgate

Software group Northgate Information Solutions issued a profit warning last week, followed swiftly by news it was in takeover talks.

There was some scepticism a bid would ever emerge with analysts at Numis issuing a sell note on the news saying: "We think that a bid at around 100p [as has been speculated] is highly unlikely, and even a bid at the current level [around 70p] would be a good price."

However today came the deal, with US private equity business Kohlberg Kravis Roberts offering 95p a share, valuing Northgate at £593m.

This time Numis said: "KKR's bid looks to have a firm grip on Northgate. KKR has acquired 20% of Northgate's shares, looks to have financing in place, and has agreement in principle from the trustees of Northgate's pension scheme. In addition, the price being paid looks very high to us, and is in line with multiples paid by private equity in the UK software sector prior to the credit crunch. We think that a competing offer is unlikely."

What Numis also thinks is that the KKR deal may open the door to possible bids for Northgate's rivals.

"This announcement will be positive for other local government software companies (Civica, Anite, IBS), because this deal opens up the possibility of consolidation in this sector, led by private equity. Both Civica and IBS are valued at just half the multiple that KKR is paying for Northgate (albeit that the HR parts of Northgate are presumably the most highly valued by KKR)."

Civica is 15.75p higher at 186, while Anite has risen 2.5p to 51p. IBS Opensystems is steady at 165.5p.