Dear All,
Forwarding you the Event Update on 3i Infotech.
3i Infotech Financial Software inc., 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$137mn. The transaction is expected to close within the next 60 days, subject to customary closing conditions and any regulatory approvals.
Acquisition details:
| Company | Acquired in year | Revenue run rate (US$mn) | Cost of acquisition (US$mn) | Valuation (Mcap to trailing sales) |
| Regulus Group | 2008 | 148 (CY2007) | 100 | 0.7x to sales |
| J&B Software | 2007 | 25(CY2006) | 25.25 | 1x to sales |
Status as of FY2010:
| Company | Revenue run rate (`cr) | Revenue run rate (US$mn) |
| Regulus Group | 705.3 | 156.6 |
| J&B Software | 119.4 | 36.5 |
Both these firms are into transaction processing business, majorly in US, which is witnessing heavy ramp down since 1QFY2011 mainly due to decline in cheque processing volumes rather than client loss. The revenues from transaction services business of 3i Infotech declined by 10.3% yoy to `819.9cr in FY2011 from `915.5cr in FY2010. Gross margins of this segment also declined by 170bp yoy to 30% in FY2011.
The deal is valued at ~0.8x sales. The 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 going ahead. The stock is currently under review and we may revisit out target price of `55 post interaction with the management.
If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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