i3 Verticals IIIV recently entered into a definitive agreement to sell its merchant of record payments business to Payroc WorldAccess, LLC, in an all-cash deal worth $440 million. The proceedings from the transaction will provide i3 Verticals with a substantial infusion of liquidity that will help it meet immediate financial needs.

This merchant of record payment business dealt with traditional merchant processing and automated clearing house processing. The business also focuses on simplifying the transactions of devices running on Europay, Mastercard MA and Visa V.

IIIV’s merchant of record payments business uses application programming interfaces (“API”) to simplify transaction processes. These APIs eliminated the need for Payment card industry and payment application data security standard certifications for transactions carried out through Europay, Mastercard and Visa-compliant devices.

i3 Verticals, Inc. Price, Consensus and EPS Surprise

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Rationale Behind the Divestiture

i3 Verticals intends to use the proceeds to reduce its debt burden, including most or all of its 2023 Senior Secured Credit Facility. Furthermore, the debt reduction will lower IIIV's borrowing rates under the facility by 1%, thereby increasing its borrowing capability to execute mergers and acquisitions in the future.

As of Mar 31, 2024, i3 Verticals had a long-term debt (excluding current portion and debt issuance costs) of $343.4 million while had cash and equivalents of $3.1 million.

Additionally, the divestiture of the merchant of record payments business will help i3 Verticals to laser focus on its three core businesses — Public Sector, Education and Healthcare. As part of the deal, the company has retained its payment facilitation platform and its ability to attach payments to its software solutions.

Conclusion

The sale of the merchant of record payment business marks a significant step in i3 Verticals' strategic evolution. By divesting this non-core segment, the company can sharpen its focus on core competencies, enhance financial flexibility and strengthen its competitive positioning. This move is expected to drive long-term growth and create greater value for shareholders.

However, i3 Verticals has been facing significant challenges due to delayed projects in backlog. These delays are creating a ripple effect, hampering the company’s growth prospects and affecting its overall financial performance. Softening IT spending amid the ongoing uncertain macroeconomic environment may negatively impact its revenues in the near term.