The FTSE 100-listed giant Capita is believed to be on the verge of taking over ailing insurance group Eastgate.
In March last year Capita took a 20.5% stake in Eastgate, which would have valued the company at around £100m.
The size of the takeover deal is not known, but analysts suggest Eastgate has accumulated debts totalling nearly £25m and, as a result, could have been sold for less than £12m.
It is understood Eastgate staff have been briefed on the deal and informed that “Capita is the way forward”.
The analyst, who asked not to be named, said: “Capita is well known in the public sector, and well known by the government, but wants to become known by the buying departments in private sector companies.
“I think that when they took the minority stake they thought they would either drive the business forward profitably or get it more cheaply later.”
The takeover has yet to be announced to the stock exchange and both companies are refusing to comment.
Capita is a £4bn stock market-listed outsourcing firm that specialises in public sector deals.
An insider told Insurance Times: “This deal will put a lot of long-standing rumours to bed. There has been a lot of speculation about the group, but Eastgate will now be part of a FTSE 100 company. I think Capita always intended to take a controlling interest once they became the biggest shareholder
Eastgate holds a leading position in the UK as a specialist outsourcer for insurers. The company provides a number of services, including claims handling outsourcing and medical and legal expenses insurance provision.
The analyst said Eastgate had reached a plateau in terms of the deals it could conclude because it did not have the necessary financial muscle.
Capita's plan to attack the insurance sector was hinted at last year by its executive chairman Rod Aldridge.
When Capita took its first 20.5% stake, Aldridge said his company was making a “significant first step in the insurance market”.
Just a year after Capita took the first stake, Eastgate senior directors Max Carruthers and Alan Quilter suddenly resigned.
Their departure coincided with the appointment of two City heavyweights, ex-Natwest chief executive Andrew Brown and Richard Milne, finance director of Barclays' investment house.
These senior changes prompted speculation that Eastgate was planning a stock market flotation.