US buyout firm in £2.5bn takeover approach for outsourcer Serco

A US-based buyout firm has made a takeover approach for Serco, the FTSE-250 company that ranks among the British government's most significant contractors.

Sky News has learnt that American Industrial Partners (AIP) contacted Serco late last year about a potential bid for the company.

The two sides are said to have engaged with one another, although it was unclear whether AIP had lodged a firm takeover proposal during their discussions.

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A person close to Serco insisted on Friday that there were no longer any active talks between them.

Serco, which has a market capitalisation of about £1.9bn, manages a string of critical government contracts in the UK, including processing asylum-seekers at two immigration centres in West Sussex and Bedfordshire.

Last year, it was awarded a contract to maintain and operate the UK's air defence radars for the next five years.

That deal is worth an estimated £32m, and includes sites at Brizlee Wood in Northumberland and Saxa Vord in the Shetland Isles.

Serco also manages the Transport for London public cycling service which provides what became known as "Boris bikes" during the former prime minister Boris Johnson's tenure as mayor.

While there may not be any live discussions between Serco and AIP, the news of an approach from a serious private equity bidder will effectively put the London-listed company in play.

A conventional 30% premium to the current Serco share price would value it at about £2.5bn.

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Last year, dozens of UK public companies were taken private in deals involving buyout firms, with Ten Entertainment and OnTheMarket among them.

Bankers expect the trend to continue, with UK equity markets remaining relatively cheap.

Serco has recovered from a torrid period when its future was cast into doubt by the mismanagement of numerous contracts and a series of crises involving high-profile customers.

Under Rupert Soames, the chief executive drafted in to rescue the company, it began a gradual recovery and is now seen as one of the most efficient outsourcers in Europe.

It has expanded rapidly in the US, playing a central role in the delivery of Obamacare.

One source said that its fast-growing American business was likely to have been the source of AIP's interest in buying the company.

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Mr Soames' exit from Serco was announced in the autumn of 2022, since when he has been named president of the CBI, the crisis-hit business lobby group, and chairman of Smith & Nephew.

He was replaced at Serco by Mark Irwin, while the company is chaired by former Rolls-Royce Holdings chief executive John Rishton.

AIP's portfolio includes a broad spectrum of industrial, technology and defence businesses.

Shares in Serco were trading on Friday at around 175p, having risen by about 14% over the last year.

A Serco spokesman declined to comment, while AIP could not be reached for comment.