The acquisition of Civica by Blackstone, a leading private equity firm, will signal a pivotal change in the public sector software solutions landscape. Therefore, this article looks to examine the potential risks and benefits for Civica’s clients that could result from this acquisition. Key considerations when any such acquisition takes place include potential changes in product offerings, service quality and client engagement, as well as the broader impact on strategic direction, research investment and compliance.
Our aim is to provide Civica’s clients with insights based on our experience in other acquisitions and through this example, to offer anyone whose supplier is being acquired, the foundational information needed to best prepare them for potential changes ahead.
Within this article, we shall be discussing:
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- Who are Civica and Blackstone?
- The background to Civica’s acquisition by Blackstone
- Public sector dependency on Civica
- Should you be worried? The pros and cons of this acquisition
- What monitoring insights might be helpful for you over the course of the next 12 months?
- So, how do you address these points? Practical steps and recommendations
- Conclusion
Who are Civica?
Civica defines itself as a global GovTech champion, creating software for thousands of public bodies and delivering critical services across central and local government, education, health and care. Building software solutions for the past 22 years and acquiring and integrating numerous businesses within the organisation, it has grown in both software asset strength and talent as a result. And today it is one of the country’s largest software companies with offices across the UK, the US, Canada, Asia, Australia and New Zealand.
Blackstone expressed their enthusiasm for the deal by describing Civica as having “an excellent brand and an enviable market position” and that they are “excited to be partnering with a stellar management team to help the business in this next phase of growth”. The deal itself is expected to close in Q2 2024, subject to regulatory approval.
…And who is Blackstone?
To give some high-level context to the Civica acquisition by Blackstone, in the last three years, Blackstone has acquired 41 companies and invested in 11 others, with their investments predominantly in the communications (8%) and information technology (7%) sectors. Blackstone’s common investment types include buyouts (24%) and secondary buyouts (23%). The organisation has invested in 28 US states and 27 different countries. The largest disclosed acquisition by Blackstone occurred in 2021 with the purchase of Medline Industries for $34 billion. Additionally, in the same period, Blackstone exited 34 companies, with trade sales being the most common exit type (39%). It’s largest disclosed exit was the sale (originally billed as a merger) of Refinitiv to the London Stock Exchange for $27 billion in 2019.
The background to Civica’s acquisition by Blackstone
Around 1,000 mergers and acquisitions occur in the UK each year, so Civica’s situation is by no means unique. In fact, we wrote about a similar subject back in 2020, when Viridor (a sizeable waste and environmental services company) was acquired by a large US-based private equity firm called KKR. At the time we wrote about whether Viridor’s clients should worry about this move and what they could do to protect themselves from any risk this might create. With Civica being acquired by a private equity firm The Blackstone Group (Blackstone), echoes of the words we wrote back then compelled us to refresh our analysis and guidance.
Public sector dependency on Civica
Just like any supplier that has carved out a narrow niche for themselves, long-term dependencies are formed which can be challenging to change, even if the need arises, due to a lack of competition in the market with similar levels of specific expertise and trust. Civica has such a large presence in the UK public sector, often providing critical software solutions and projects to very niche areas, such as Revenues and Benefits, Finance Solutions and Housing and Property/Asset Management. Therefore, those public organisations have critical dependencies in the ongoing development of both the solutions and professional services capability of Civica. Is there an argument for the encouragement of competition within even these narrow areas of expertise? Of course, with competition comes the potential of price benefits and a more readily accessible backup plan if confidence in any particular supplier should wane.
Should you be worried? The pros and cons of this acquisition
It depends on how the acquisition is managed by both Blackstone and Civica. When a technology firm like Civica is acquired by an asset manager like Blackstone, in our experience, you could potentially experience a range of impacts, both positive and negative:
Pros:
- Complementary Capabilities: The acquisition can result in the expansion of product portfolios and enhanced services. If deployed in the right way, it can lead to a more robust suite of solutions that cater to a broader range of client needs, as the acquired platform can seamlessly enhance the likes of Civica’s offerings.
- Synergies and Efficiencies: There may be shared operational similarities between Civica and other software/digital-based organisations Blackstone has previously acquired. If so, these integrations can lead to streamlined processes, cost efficiencies and optimised resource allocation across multiple entities. This can contribute to enhanced operational performance and an improved client experience.
Cons:
- Conflicting Motives: Civica might have different objectives from Blackstone and its similar acquisitions, potentially adversely impacting customer relations and individual service level agreements (SLAs).
- Increase in Product Prices: Post-acquisition, managing products at existing price points can become difficult and potentially lead to increased expenditures and operational overheads. This often results in price increases.
- Product Stagnation: There’s a risk of product growth hitting a dead end, especially if Blackstone acquires another business in the same vertical. This stagnation can be due to a lack of market expansion outside of the existing customer base.
- Changes in Support: Support is crucial in maintaining confidence. Any adverse changes in support policies post-acquisition can negatively impact current supplier–client relationships.
- Neglect of Customer Focus: Acquisitions are often more beneficial to shareholders than customers. The primary goal might be to buy another customer base rather than improve goods and services, which can lead to neglected consumer needs and degraded customer service.
- Integration Issues: To improve operational effectiveness, acquisitions can result in merging disparate systems, processes and customer support staff, which in turn can lead to operational challenges. Even minor operational changes can significantly impact customers and employees, leading to miscommunications and disruptions.
- Risk to Certified Status: For clients in industries where maintaining a certified status is crucial, any negative consequence due to M&A activity can be detrimental. Poorly managed system migrations or uncoordinated actions can tarnish a company’s brand, taking time and effort to rebuild.
- Cultural Clash: Merging acquisitions with different values, practices and work approaches can lead to a clash of organisational cultures, hindering effective collaboration and slowing down decision-making.
- Technical and Operational Challenges: Integrating different technology platforms and systems is complex and can lead to compatibility issues, data discrepancies and disruptions. This can result in temporary inefficiencies and potential client dissatisfaction.
- Talent Transition: The departure of key personnel due to the merger can result in the loss of key-person expertise, impacting the quality of services provided to clients.
In summary, while acquisitions can bring about improvements and expansions in service offerings, they also pose significant risks related to price increases, service disruptions and a potential shift away from customer-centric approaches. It’s crucial for you to carefully monitor these changes and adjust your strategies and expectations accordingly over the coming months.
What monitoring insights might be helpful for you over the next 12 months?
- Long-term Strategic Directions: How Blackstone’s acquisition might influence Civica’s long-term strategy, especially regarding innovation, market expansion and customer engagement. Will there be a shift towards new markets or technologies?
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- Positive: A clear, focused long-term strategy could lead to more innovative solutions, better alignment with emerging technologies and enhanced market responsiveness.
- Negative: If Blackstone’s strategic priorities differ significantly from Civica’s core competencies, it could lead to a misalignment with your needs and a potential neglect of core services.
- Investment in Research and Development: The level of investment that might be allocated to Civica for research and development can affect the future roadmap of products and services, impacting your reliance on Civica for cutting-edge solutions.
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- Positive: Increased investment often accelerates the development of new cutting-edge solutions, benefiting you with more advanced, efficient tools.
- Negative: If investment priorities shift to areas not relevant to you, there could be stagnation in the development of existing solutions that impact both your service quality and innovations in the solutions you are using.
- Global Expansion and Local Support: Blackstone’s global presence could facilitate Civica’s expansion into new markets, thus providing clients with broader support and services internationally. Conversely, assess if there might be a shift in focus away from local, UK-specific needs.
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- Positive: Global expansion may bring diversified expertise and broader solutions offering clients access to a wider range of services, innovative software products and support.
- Negative: A focus on global markets might lead to reduced attention to local, UK-specific needs, potentially impacting the relevance and effectiveness of solutions for UK clients.
- Data Security and Compliance: Given the increasing concerns about data security and regulatory compliance, it’s crucial to understand how the acquisition could impact Civica’s policies and capabilities in these areas.
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- Positive: Enhanced focus on data security and more resources to support this could improve compliance standards, offering clients a more secure and reliable service.
- Negative: Any misalignment in compliance or security policies post-acquisition could lead to risks in data handling and regulatory compliance for clients.
- Customer Engagement and Feedback Mechanisms: Explore whether the acquisition might lead to changes in how Civica engages with its clients for feedback and continuous improvement.
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- Positive: Improved engagement mechanisms could lead to better responsiveness to client needs and more client-centric product enhancements.
- Negative: If customer feedback channels are deprioritised, client needs may not be adequately addressed, leading to a decline in service satisfaction.
- Impact on Existing Contracts and Agreements: An assessment of how ongoing contracts and service agreements might be affected, both in the short and long term.
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- Positive: The acquisition could lead to more favourable terms in contracts as Civica leverages Blackstone’s resources and market position.
- Negative: Existing contracts might be renegotiated under less favourable terms, or service levels might change and impact client expectations and planning.
- Vendor Lock-in Risks: Discuss the risk of vendor lock-in and how clients might plan for potential contingencies, considering possible changes in Civica’s product and service offerings.
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- Positive: A broader product portfolio could offer clients more integrated solutions, reducing the complexity of managing multiple vendors.
- Negative: Clients might face increased vendor lock-in risks, limiting their flexibility and increasing dependency on Civica for critical services.
- Cultural and Organisational Alignment: Delve deeper into the cultural and organisational alignment between Civica and Blackstone, exploring how this might impact the service quality and internal innovation processes.
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- Positive: Good alignment could foster a strong collaborative environment, leading to innovative solutions and efficient service delivery.
- Negative: Cultural mismatches could lead to internal conflicts, affect service quality and employee morale and, ultimately, impact client satisfaction.
- Case Studies of Similar Acquisitions: Including case studies of similar acquisitions by Blackstone or other private equity firms and their outcomes could provide practical insights and comparisons.
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- Positive: Learning from similar acquisitions can help clients understand potential outcomes and prepare accordingly.
- Negative: Negative precedents might raise concerns about the likelihood of similar challenges occurring post-acquisition.
- Expert Opinions and Industry Analysis: Incorporating opinions from industry experts or analysts could assist in assessing the implications of the acquisition.
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- Positive: Insights from experts provide a broader perspective, helping clients to strategise and make informed decisions.
- Negative: Over-reliance on external opinions could lead to confusion or misalignment with internal assessments and strategies.
By addressing these areas, you can take a more rounded view of the potential effects of an acquisition, helping you to navigate any changes, gain advance warning of possible challenges and leverage new opportunities that result.
So, how do you address these points? Practical Steps and Recommendations
- Regular Review of Service Agreements: Actively monitor any changes in your service agreements with Civica, ensuring they remain aligned with your organisational needs and expectations.
- Engagement with Civica’s Roadmap: Keep abreast of their strategic roadmap, post-acquisition. Attend any webinars or sessions they offer for insights into future product developments and strategies.
- Feedback Mechanism Utilisation: Use their client feedback channels to voice any concerns or needs, ensuring your feedback contributes to their service improvement.
- Diversification of Solutions: Where necessary, consider diversifying your software solution providers to mitigate risks associated with vendor lock-in and to ensure continuity of critical services.
- Compliance and Security Checks: Regularly review compliance and data security standards in light of the acquisition, ensuring that they continue to meet your regulatory requirements.
- Staying Informed on Industry Trends: Keep an eye on market trends and insights from industry experts regarding the acquisition, to better understand its broader implications and potential opportunities for your organisation.
- Scenario Planning for Service Disruptions: Develop contingency plans for potential service disruptions or material changes in support to maintain operational continuity. Such planning is likely to already form part of your business continuity processes.
- Internal Assessment of Cultural Fit: Evaluate how changes in Civica’s culture and practices post-acquisition align with your organisational values and working style.
- Budget Review for Price Changes: Prepare for potential price adjustments in Civica’s offerings by reviewing and discussing these with them. You want evidence-based value if the pricing is to increase. For example, what additional value will you receive for any potential price increases? If it is merely ‘more of the same’, see point 4 above regarding potential diversification.
- Continuous Market Review: In line with points 4 and 9 above, always be ahead of the game in regularly assessing the market for alternative or complementary software solutions and stay open to changes that could better serve your evolving needs.
Conclusion
This acquisition potentially represents a transformative moment, not just for Civica but for its extensive client base in the public sector.
While this move could herald a new era of innovation and growth, it also comes with its share of challenges and uncertainties.
For clients, staying informed and adaptive is crucial. Navigating this new landscape demands a strategic approach similar to the points above, one that balances the potential for expanded capabilities with the need for vigilance against any shifts that could affect service quality and client satisfaction.
As the dust settles on this significant acquisition, the true impact will unfold through seeing the results of Blackstone’s strategic vision and Civica’s commitment to its clients.
