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3i Infotech signs agreement to sell Regulus Group and J&B Software for
US$137mn
3i Infotech Financial Software, Inc., a subsidiary of 3i Infotech Ltd., has signed an
agreement to sell its US-based global billing and payments unit, consisting of Regulus
Group and J&B Software, to an affiliate of Cerberus Capital Management, L.P. for
US$137mn. The transaction is expected to close within the next 60 days, subject to
customary closing conditions and any regulatory approvals.
3i Infotech acquired Regulus Group in 2008 for a consideration of US$100mn; this deal
was valued at 0.7x its CY2007 sales. The company acquired J&B Software for a
consideration of US$25.25mn in 2007; this deal was valued at 1x its CY2006 sales.
Both these firms are into the transaction processing business, majorly in the US, which is
witnessing heavy ramp down since 1QFY2011 mainly due to a decline in cheque
processing volumes rather than client loss. Revenue from the transaction services business
of 3i Infotech declined by 10.3% yoy to `819.9cr in FY2011 from `915.5cr in FY2010.
Gross margin of this segment also declined by 170bp yoy to 30% in FY2011.
Revenue contribution of Regulus Group and J&B Software in FY2010 was US$156.6mn
and US$36.5mn, respectively. So the current deal with Cerberus is valued at 0.8x sales.
This divestment reduces the leverage and strengthens the balance sheet of 3i Infotech,
taking gross debt-to-equity ratio to 1.38 from 1.85 previously. However, we are concerned
about the management’s flip-flop M&A strategy. We await further clarity on the future
growth strategy. The stock is currently under review and we may revisit out target price of
`55 post interaction with the management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
3i Infotech signs agreement to sell Regulus Group and J&B Software for
US$137mn
3i Infotech Financial Software, Inc., a subsidiary of 3i Infotech Ltd., has signed an
agreement to sell its US-based global billing and payments unit, consisting of Regulus
Group and J&B Software, to an affiliate of Cerberus Capital Management, L.P. for
US$137mn. The transaction is expected to close within the next 60 days, subject to
customary closing conditions and any regulatory approvals.
3i Infotech acquired Regulus Group in 2008 for a consideration of US$100mn; this deal
was valued at 0.7x its CY2007 sales. The company acquired J&B Software for a
consideration of US$25.25mn in 2007; this deal was valued at 1x its CY2006 sales.
Both these firms are into the transaction processing business, majorly in the US, which is
witnessing heavy ramp down since 1QFY2011 mainly due to a decline in cheque
processing volumes rather than client loss. Revenue from the transaction services business
of 3i Infotech declined by 10.3% yoy to `819.9cr in FY2011 from `915.5cr in FY2010.
Gross margin of this segment also declined by 170bp yoy to 30% in FY2011.
Revenue contribution of Regulus Group and J&B Software in FY2010 was US$156.6mn
and US$36.5mn, respectively. So the current deal with Cerberus is valued at 0.8x sales.
This divestment reduces the leverage and strengthens the balance sheet of 3i Infotech,
taking gross debt-to-equity ratio to 1.38 from 1.85 previously. However, we are concerned
about the management’s flip-flop M&A strategy. We await further clarity on the future
growth strategy. The stock is currently under review and we may revisit out target price of
`55 post interaction with the management.
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