Three years after striking back-to-back deals to acquire two firms in the USA within a span of just seven months, ICICI Group-backed IT & ITES firm 3i Infotech has decided to sell both the assets for just a tad over what it paid to buy them to strengthen its balance sheet.
The company has decided to sell its US-based Global Billing & Payments unit, comprising of Regulus Group and J&B Software, to an affiliate of private equity firm Cerberus Capital Management, L.P. for $137 million.
3i Infotech had acquired Regulus for $80 million (with additional consideration of up to $20 million based on an earn-out linked to certain performance parameters) in April, 2008, after snapping J&B Software in October, 2007, for $25.25 million.
The company has seen its revenues more than double in the past three years, partly boosted by the acquisitions. But its debt has also moved up similarly over the same period. As of March 31, 2011, the company had a total debt of around Rs 2,534 crore ($567 million), almost the same as its revenues. Although its profit has also risen, it has not mirrored the extent of growth in revenues.
Raymond James & Associated, Inc. acted as 3i Infotech’s financial advisor and Alvarez & Marsal Transaction Advisory acted as its accounting advisor in the transaction. The transaction is expected to close within the next 60 days, subject to approvals and other conditions.
3i Infotech, which was recently in the news for rumoured talks between IBM and its promoter for a buyout, is also backed by the Norwegian sovereign wealth fund.
At the time of its acquisition by 3i Infotech, Regulus was an independent bill presentment and remittance processing company, with approximately 1,300 employees and processing one in every fifty cheque payments in the USA. The company produced an estimated 4 per cent of all consumer statements generated in the country and its clients included firms in the insurance, finance, telecom, utilities and healthcare sectors. It had revenues of $ 148 million in 2007.
J&B Software Inc. provides software products and services related to remittance processing in the USA. It had revenues of around $25 million when it was acquired by the Indian firm.
This means that the sale of the unit will shrink 3i Infotech’s consolidated sales by around Rs 600-700 crore in the current fiscal, unless the company makes it up by organic growth in rest of the business.
But the question is: Does this signal cleaning up the books before an actual sell-out by ICICI to IBM as has been speculated by CNBC?