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"Apax Partners has agreed to buy the software business of listed IT services company 3i Infotech NSE 4.73 % for ₹1,000 crore, in what would be the first PE buyout of an Indian software company.

The software business that generates $60 million in revenues will be carved out of the main company through a business transfer agreement or slump sale. The listed company will continue owning the services business that generates $100 million in revenues. The deal values the software arm higher than the current market capitalisation of the entire company at ₹910 crore.

The company’s board met on Monday to finalise the transaction.ET broke the story online before the official announcement.

The software business focuses on core BFSI, with clients in the Middle East, Southeast Asia and India growing at a 6-8% CAGR. It has a core insurance platform called Premia, a core lending platform for banks and NBFCs called Kastle, an anti-money laundering application called AM Lock, a core fund management application called MFund, and ERP software application called Orion, among others.

Increasing technology spend on core software systems across the BFSI industry and ERP space is driving rapid growth in the enterprise software market in the region,” said Shashank Singh, head of India operations at Apax Partners.

The transaction will help pay out the ₹800 crore debt that the company had amassed due to misguided acquisitions that eventually took the company into corporate debt restructuring between 2012 and 2016.

For example, it had acquired three entities – Regulus Group($80 million), J&B Software ($25 million) and JP Morgan's National Retail Lockbox business ($10 million) between 2008 and 2011. But they did not deliver along expected lines and became a drag on the overall business, especially as transaction processing is a low-margin service. In 2011, the company was forced to sell Regulus and J&B Software for around $137 million.

ET had reported in its December 24 edition that PE funds were in a race to buy the company.

Regional banking clients have nuances and local regulations, like Islamic banking, which global players in the BFSI segment cannot often cope up with. That’s why you have a clutch of smaller, niche players co-existing,” said an analyst familiar with the sector.

The transaction is expected to get completed by March 31, 2021.

Today’s announcement is value accretive for all stakeholders of 3i Infotech,” said Padmanabhan Iyer, managing director, 3i Infotech. “Both businesses will have the resources to capitalise on market opportunities and build long term value.”

People familiar with the transaction said Apax is keen to turnaround the company and scale up operations through organic and inorganic growth over the next 3-5 year horizon. The PE fund has been historically bullish on tech services and software having bought out Patni Computers, Global Logic as well as investments in Zensar Technologies. Globally, Apax has previously backed software companies such as Duck Creek, MyCase, Eci and Lexitas. "