i3 Verticals to sell merchant of record payments business to Payroc for $440M

Nashville, Tenn.-based payment processor i3 Verticals Inc. agreed to sell its merchant of record payments business, including its associated proprietary technology, to Payroc WorldAccess LLC in an all-cash transaction for $440 million, subject to certain purchase price adjustments.

The divested business includes two noncore assets from i3's software and services segment related to the nonprofit and property management vertical markets, representing about $4 million in annual adjusted EBITDA, according to a June 26 release.

The company's customers will be narrowed to three strategic verticals: public sector, education and healthcare. i3's ongoing business will be about 75% software and related services revenue, and 25% payments and others, the release said.

After paying the transaction expenses, i3 will use the proceeds to pay down debt. After taxes and in the absence of other acquisitions, the company expects to pay down all, or nearly all, of its 2023 senior secured credit facility.

The 2023 senior secured credit facility will remain in place, which includes $450 million of aggregate commitments in the form of a revolving credit facility. Applicable borrowing rates under the facility will fall by 1% after the company reduces debt balance, and remain there until the consolidated total net leverage ratio reaches 2x.

The increase in borrowing capacity will provide "significant capital" for M&A, i3 said in the release.

The transaction is subject to closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The transaction is expected to close sometime in i3's fiscal fourth quarter.

Under specific conditions described in the deal, if i3 validly terminates the agreement, then Payroc would pay i3 an aggregate amount equal to $25 million in reverse termination fee within two business days after the date of the termination, according to a June 26 regulatory filing.

In addition, subject to certain limitations, either the buyer or seller may terminate the agreement if the transactions are not consummated by 5:00 p.m. local time on Oct. 24, the filing said.

Raymond James & Associates Inc. serves as financial adviser to i3, and Bass Berry and Sims LLP is the company's legal adviser.

Troutman Pepper Hamilton Sanders LLP is Payroc's legal adviser.