8-K: i3 Verticals Completes $438 Million Sale of Merchant Services Business, Appoints New CFO

i3 Verticals has finalized the sale of its merchant services business to Payroc for approximately $438 million and announced a transition in its executive leadership team.

Summary

• i3 Verticals has completed the sale of its merchant services business to Payroc for approximately $438 million in cash, subject to post-closing adjustments.
• The sale includes the merchant services business and its associated proprietary technology.
• Following the divestiture, i3 Verticals will focus on its vertical market software business, specifically in the Public Sector (including Education) and Healthcare verticals.
• The company has appointed Geoff Smith as Chief Financial Officer, who previously served as Senior Vice President of Finance.
• Clay Whitson, the former CFO, has been appointed to the newly created role of Chief Strategy Officer, focusing on capital allocation, M&A, and investor relations.
• The transaction includes a transition services agreement, a processing services agreement, and a restrictive covenant agreement.

Sentiment

Score: 7

Explanation: The document reflects a positive strategic shift for the company with a significant cash infusion, but also includes some risks and costs associated with the transaction. The management changes are presented positively.

Positives

• The sale of the merchant services business provides i3 Verticals with a significant cash infusion of $438 million.
• The company is now streamlined to focus on its core vertical market software business.
• The appointment of Geoff Smith as CFO is seen as a smooth transition, given his previous experience within the company.
• Clay Whitson's move to Chief Strategy Officer allows him to focus on strategic growth initiatives.
• The company has a clear strategic direction focusing on the Public Sector and Healthcare verticals.

Negatives

• The company has incurred costs related to the sale during the nine months ending June 30, 2024.
• The pro forma financials show a net loss from continuing operations for the nine months ended June 30, 2024, of $2,877,000.
• The company will need to manage the transition of its merchant services business to Payroc.
• The company will be bound by restrictive covenants, including non-competition and non-solicitation agreements.

Risks

• There are post-closing risks related to the ancillary agreements entered into with Payroc.
• The company's ability to execute its strategy and achieve its goals after the divestiture is subject to risks.
• The company faces risks related to the transition of its merchant services business.
• The company is subject to various risks and uncertainties that could cause actual results to differ materially from forward-looking statements.

Future Outlook

i3 Verticals will focus on its vertical market software business in the Public Sector (including Education) and Healthcare verticals, and the company expects to use the remaining proceeds from the sale for transaction costs, taxes, and general corporate purposes.

Management Comments

• Greg Daily, Chairman and CEO of i3 Verticals, stated that the transaction marks a significant moment for the company and that they are confident their employees have found a wonderful home at Payroc.
• Jim Oberman, CEO of Payroc, expressed his excitement about the transaction and the addition of i3 team members and partners.
• Greg Daily also stated that Geoff Smith has excelled at taking on increasing responsibilities and that the transition will give Clay Whitson time to work on various projects across the company.

Industry Context

The sale of the merchant services business reflects a strategic shift for i3 Verticals to focus on its core software business in specific vertical markets, which is a common trend in the technology industry where companies are streamlining operations to focus on their strengths.

Comparison to Industry Standards

• The divestiture of the merchant services business is similar to other software companies that have divested non-core assets to focus on their primary business lines.
• The valuation of the merchant services business at approximately $438 million is within the range of similar transactions in the payments processing industry.
• The appointment of a new CFO and the creation of a Chief Strategy Officer role are common practices in companies undergoing strategic changes.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the cash infusion and the company's focus on its core business.
• Employees of the merchant services business have transitioned to Payroc.
• Customers of i3 Verticals will continue to receive services in the Public Sector and Healthcare verticals.
• Suppliers and creditors will be impacted by the company's strategic shift and financial changes.

Next Steps

• i3 Verticals will focus on its vertical market software business in the Public Sector (including Education) and Healthcare verticals.
• The company will manage the transition of its merchant services business to Payroc.
• The company will use the remaining proceeds from the sale for transaction costs, taxes, and general corporate purposes.

Key Dates

Keywords

i3 Verticals, Payroc, Merchant Services, Divestiture, Acquisition, Chief Financial Officer, Chief Strategy Officer, Vertical Market Software, Public Sector, Healthcare, Financial Results, M&A