Northgate pays £5m for option to take over Rebus

Northgate Information Solutions, the software company, yesterday took steps to secure a reverse takeover of rival Rebus HR Group in a deal worth £150m.

A number of bidders have been circling Rebus, a leading supplier of software for managing payroll and employee information systems. In order to stave off competing cash offers for the company, Northgate yesterday paid £5m for an exclusive option to buy Rebus and was given 10 weeks to complete the deal. This down-payment will be netted off the final £150m price tag, but if Northgate fails to win backing from its shareholders for the takeover, it will lose the £5m.

In terms of market value the acquisition will double Northgate, which specialises in software for local government and police authorities. It says the enlarged company will provide the software for paying 30 per cent of all wages in the UK.

"This will be a transformational deal for Northgate," Chris Stone, its chief executive, said yesterday. "It will make us the market leader in HR and payroll software, we will get a great customer bank from Rebus and it will give us the scale to expand our business internationally. The outlook for Northgate has never been so exciting."

The takeover is likely, however, to result in some job losses. Rebus has 1,100 staff and Northgate 1,350, but Northgate was unable to specify yesterday how many jobs would be at risk.

Northgate will take on a substantial part of Rebus's debts and the rest of the deal is likely to be financed through a mix of cash and shares. Rebus is owned by the private equity firms Warburg Pincus and General Atlantic Partners.

The move came as Northgate reported a rise in turnover of 28 per cent to £50.6m, thanks to growth in public sector contracts. Northgate also said it had won a number of new contracts in the past few months, and revenues from its existing operations in the public sector were up 26 per cent over the past six months.

Northgate software is used to issue penalty notices for the London Congestion Charging Scheme, and the company said yesterday that the operation was running well. It hopes that further opportunities in this area will arise.

Demand from the corporate sector, however, was not as strong and Northgate yesterday said market conditions continued to be uncertain, with little sign of improvement in IT expenditure. The company has also had a tight rein on costs this year, and yesterday reported that operating margins were up to 4.7 from 2.9 per cent.

Northgate shares were suspended yesterday in accordance with listing rules governing reverse takeovers.