3i Infotech, a global information technology company, announced yesterday it agreed to sell its U.S.-based global billing and payments unit to an affiliate of private equity firm Cerberus Capital Management. Cerberus is paying $137 million for the unit which includes Regulus Group and J&B Software — two companies 3i Infotech acquired less than three years ago.
In April 2008, 3i Infotech acquired Regulus for $80 million (with $20 million earn-out); just a few months earlier it had snapped up J&B Software for $25.25 million in October 2007. Both acquisitions were part of a strategic acquisition push to strengthen its position in the payment processing industry. At the time, Regulus was the largest independent remittance provider as well as one of the top providers of bill processing services in the U.S. J&B provides software products and services related to remittance processing in the USA and had revenues of around $25 million when it was acquired in 2007. After the acquisitions, the companies were integrated to form the global billing & payments unit of 3i Infotech.
Interestingly, ICICI Group (a partial owner of 3i Infotech) was recently rumored to be in talks with IBM to sell its 20% stake in 3i Infotech, valuing the company around $240-$300 million (its current market cap is about $212 million). Today’s announced unit spin-off could be the firm cleaning up its portfolio before a larger investment in the entire company takes place. 3i currently offers solutions and services on IBM pSeries, xSeries and IBM Total Storage servers, so a strategy investment on IBM’s part would not be farfetched.
Revenues at 3i Infotech also more than doubled over the past three years, partly boosted by the acquisitions. This is certainly a lure for investors, and as 3i says, a testament to their M&A strategy. According to 3i CEO V. Srinivasan, the divestment of the billing and payments unit reduces the leverage and strengthens the balance sheet of the company, as well as enables it to go back to its roots as a significant IT products and services player.