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XPS Pensions Group

2 contingent deals

On Tuesday 18 September 2018, XPS Pensions Group (”XPS”) announced two contingent deals:

The proposed acquisition of Kier Pensions Unit (“KPU”) from Kier Group for total max consideration of £3.5m in cash conditional, inter alia, on a threshold percentage of KPU’s existing clients agreeing to transfer their contract to XPS. The acquisition is expected to add approximately 4% to XPS’s revenues.

The proposed disposal of Healthcare Consulting Business (“HCB”) to Punter Southall Group Ltd (“PSGL”) for total consideration of £1.25m in cash conditional upon the amount of revenue generated by HCB in the twelve months after the disposal.

In commenting on these deals Paul Cuff, joint CEO of XPS Pensions Group, said:

the KPU “acquisition strengthens [XPS’s] leading position in the pensions administration market, [provides] a strong foothold in the public sector third party administration market and enhances [XPS’s] regional presence.”

the sale of HCB “[is part of a] strategy of focusing on the UK pensions market.”

Zeus view

KBU’s Public Sector clients (e.g. around half of the police forces in the UK) would be a good addition to XPS’s leading Pensions Administration business. While KBU does not prepare separate audited accounts, we calculate that as Pensions Administration is c 30% of XPS’s revenue, KBU (with c 4% of XPS’s Group revenue) would add c. 13% to XPS’s Pensions Administration division revenue.

HCB was identified as a “non-core business” in the Circular and Prospectus which proposed the creation of XPS Group. HCB’s revenue for the year to March 2017 was £1.03m (2016: £1.15m). HCB is clearly non-core to XPS.

We will include these two transactions into our XPS forecasts once completion has occurred. Overall, we expect the combination of both transactions will add to XPS’s revenues and be earnings enhancing.

XPS Group plans to report its interim results on Thursday 29 November.

Valuation

While these two transactions are individually immaterial, they add value by enabling management to focus on growing XPS Pensions Group core-businesses.