QinetiQ seeks strategic PE partner

QinetiQ, the UK government’s science and technology business is seeking a strategic partner. The announcement comes at a time when Edmund Truell, chairman of the British Venture Capital Association, is calling for greater private equity involvement in the public sector. There has been much speculation about private equity interest in QinetiQ and Terence Jagger, director of DERA partnering team, says QinetiQ had received a very warm response from the industry and that the Ministry of Defence had been in informal talks with a number of firms.

A Public Private Partnership was first considered for the Defence Evaluation and Research Agency (DERA) in 1998 and QinetiQ was formed from the government’s defence research and development organisation in July last year. The favoured route to private ownership of the business was previously a stock market listing. However, defence minister Dr Lewis Moonie said a flotation under current market conditions would not realise the best value and that a strategic partnership offered the best potential for a transaction in 2002.

Jagger said the size of the stake offered for sale had not yet been decided but was likely to be between 25 per cent and 50 per cent. The deal will be structured so the government retains a significant stake and shares in the appreciation in QinetiQ’s value, to be realised through an eventual listing in two to four years time. Interested parties have until March 15 to express an interest via advisor, UBS Warburg. Jagger said they are pushing on vigorously with the sale and hope to have selected a preferred bidder by the summer and completed the deal by the end of the year. Bids will not be accepted from defence manufacturers and security issues will be considered when looking at all potential buyers.

Truell, speaking at the BVCA’s annual chairman’s dinner, said the demise of Railtrack had had a serious adverse effect on public-private co-operation: “The financial world is now putting a risk premium on deals with the government. This is really counter-productive. If the relationship between the public and private sectors is to work, there must be confidence on each side.”

QinetiQ employs 9,000 staff and has a turnover of GBP800 million. It provides services such as consultancy advice and test facilities to the Ministry of Defence and commercial customers. DERA research has led to the development of liquid crystal displays (LCDs), carbon fibre, infrared sensors and microwave radar. Jagger says the company has significant growth potential in transferring its technology to industries such as telecoms, software, sensors, materials and security.