Northgate in talks with General Atlantic over £600m takeover

Northgate Information Solutions is in talks with the private equity firm General Atlantic Partners, as well as other venture capital firms, regarding a potential takeover of the business that could be worth more than £600m.

General Atlantic Partners is the software and outsourcing company's largest shareholder, with a near 13 per cent stake in the company. The private equity company was involved in talks to take software developer Misys private over recent months until negotiations collapsed late last week. General Atlantic declined to comment on the situation.

Following a 10 per cent spike in its share price earlier this week, Northgate confirmed it was in discussions that may lead to an offer being made to buy the business after a number of unsolicited takeover approaches. It declined to name the parties involved.

Talks are still at an early stage but Northgate is expected to be amenable to a deal given the progress it has made over the past two years under the leadership of Chris Stone. Numis Securities noted that Mr Stone has 17 million options at around 20p, meaning management has an incentive to complete a deal.

Northgate is a market leader in human resource and payroll processing, working on one in three UK workers' salaries. It also operates in the local government applications sector and fields about 90 per cent of 999 calls made to the police. The company's long-term contracts, recurring revenue and high levels of cash flow would be attractive to private equity companies.

Bridgewell Securities analyst Kevin Ashton said a price of up to 115p a share, or about £615m, was justifiable based on the valuation of Northgate's US rivals ADP and Ceridian. Numis Securities analyst David Toms suggested a price of 105p based on recent deals in the sector. Shares leapt a further 7.1 per cent to 94.25p after the company confirmed it was in discussions.

Other private equity bidders could include Permira, which worked with General Atlantic on the failed Misys bid, and Carlyle as it bought German P&I, a company Northgate was rumoured to be interested in. As with Misys, the private equity interest could flush out trade buyers, although analysts viewed that as unlikely.

Northgate is one of the best-regarded companies in the business process outsourcing sector and it has reported a 95 per cent jump in full-year profit to £30.6m on revenue of £332.7m. The progress was made despite the relocation of its headquarters in Hemel Hempstead after the Buncefield oil depot fire last December.