NASHVILLE, Tenn. - In a significant move within the payments industry, i3 Verticals, Inc. (NASDAQ:IIIV) has agreed to sell its merchant of record payments business to Payroc WorldAccess, LLC for $440 million in cash, subject to adjustments. This transaction, announced today, is expected to close during i3 Verticals’ fiscal fourth quarter, pending customary closing conditions, including the expiration of the Hart-Scott-Rodino Antitrust Improvements Act waiting period.
Greg Daily, Chairman and CEO of i3 Verticals, emphasized the strategic importance of the divestiture, expressing confidence in Payroc as the new steward of the payments platform they developed. Post-sale, i3 Verticals will concentrate solely on software solutions for Public Sector, Education, and Healthcare markets, retaining their payment facilitation platform.
The sale will significantly strengthen their balance sheet, with the majority of the proceeds earmarked for debt reduction. After the deal, i3 Verticals expects to be able to pay down all or most of its outstanding 2023 Senior Secured Credit Facility.
James Oberman, CEO of Payroc, expressed enthusiasm for the acquisition, noting the alignment of values and goals between the two companies. Payroc plans to leverage the i3 merchant business to bolster growth and create opportunities for the team members transitioning to Payroc.
The divested assets, which are part of i3's Software and Services segment, include two non-core elements related to Non-profit and Property Management verticals, contributing around $4 million in annual adjusted EBITDA. Upon completion of the sale, i3 Verticals’ business will consist of approximately 75% software and related services revenue, with the remaining 25% from payments and other sources.
The transaction is expected to reduce i3 Verticals’ debt and lower borrowing rates under the existing credit facility by 1% until the Consolidated Total Net Leverage Ratio reaches 2x. The available borrowing capacity post-transaction will provide capital for future mergers and acquisitions.
Financial advisory services for i3 Verticals were provided by Raymond James & Associates, Inc., with legal counsel from Bass, Berry and Sims, LLP. Payroc’s legal advisor was Troutman Pepper Hamilton Sanders LLP.
The information in this article is based on a press release statement.
In other recent news, i3 Verticals reported a slight miss in its fiscal second quarter 2024 earnings, leading BMO (TSX:BMO) Capital Markets to adjust its price target for the company to $24.00 from $25.00 while maintaining a Market Perform rating. This adjustment came after i3 Verticals revised its full-year 2024 guidance downward for the second consecutive quarter. Despite this, the company continues to explore the sale of its Merchant Services business, a move that has been closely watched by investors.
In the company's second quarter 2024 earnings call, i3 Verticals announced that it had seen a slight increase in revenues and maintains a strong balance sheet. The company is considering the sale of certain Merchant Services business assets to reduce debt, with the proceeds from the potential sale intended to pay down debt. The company's revised FY24 outlook projects revenues between $380 million and $394 million, and adjusted EBITDA between $107 million and $113 million.
The company is also focusing on its strategic expansion into key vertical markets such as the public sector, healthcare, and education, with plans to make strategic hires and acquisitions. These are the latest developments for i3 Verticals as it navigates its financial and strategic goals.
InvestingPro Insights
In light of i3 Verticals, Inc.'s (NASDAQ:IIIV) recent announcement to sell its merchant of record payments business, investors are closely monitoring the company's financial health and future prospects. According to InvestingPro data, i3 Verticals is currently trading at a high earnings multiple, with a P/E ratio of 193.73. This valuation is based on the company's price relative to its net income, which suggests that the market has high expectations for future earnings growth.
Despite the high P/E ratio, i3 Verticals has demonstrated a solid financial performance over the last twelve months as of Q2 2024, with a revenue growth of 9.02% and an impressive gross profit margin of 77.93%. These figures indicate that the company has been efficient in managing its cost of goods sold and maintaining profitability. Moreover, the company's operating income margin stands at 10.08%, reflecting its ability to translate revenue into operating income effectively.
An InvestingPro Tip worth noting is that i3 Verticals does not pay a dividend to shareholders. This may be particularly relevant for income-focused investors who prioritize regular dividend income. Furthermore, while analysts predict the company will be profitable this year, it's important to consider that 7 analysts have revised their earnings estimates downwards for the upcoming period. This could signal potential headwinds or a more conservative outlook on the company's financial performance.
For investors seeking a deeper analysis and additional insights into i3 Verticals' financial outlook, InvestingPro offers more tips on the company's performance and valuation. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 9 InvestingPro Tips for i3 Verticals at https://www.investing.com/pro/IIIV.
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