Capita is spending £77.7m on IBS OPENsystems, a UK producer of software for housing associations.

IBS will now represent a large chunk of Capita's local government business and around 70 per cent of IBS shareholder are backing the deal, according to the outsourcing group.

The deal makes sense for both companies and the business process outsourcing (BPO) industry, said Douglas Hayward, research manager at analyst IDC.

"Can software and services really mix? Of course. We believe that the long-term health of the BPO industry relies on the exploitation of software technology," he said.

"By supplementing and replacing labour, software "assets" increase the repeatability and scalability of otherwise labor-reliant BPO services."

"The flip side is that the IBS business might get overlooked and underfed, but it is unlikely that Capita would seriously neglect what is one of its bigger acquisitions - given Capita's aversion to large M&A deals."