Bain Capital looks to buy Iress UK Mortgages arm for $164m

Bain Capital looks to buy Iress UK Mortgages arm for $164m

Iress CEO Marcus Price.

In a bid to reduce debt and continue offloading non-core assets, Melbourne-based software development company Iress (ASX: IRE) has today agreed to sell its UK Mortgages arm to private equity firm Bain Capital for $164.3 million.

The decision comes less than a month since Iress agreed to divest its Platform business to Praemium (ASX: PPS) for $1 million, in addition to earn-outs of up to $20 million over 18 months if milestones are met.

In mid-2023, the company also sold off its Managed Funds Administration (MFA) business to global software and software-enabled services provider SS&C Technologies in an all-cash deal worth $52 million.

Acquired more than a decade ago, Iress' UK business provides mortgage sales and origination software (MSO) and associated consulting services to banks and building societies across the UK.

The most recent sale will be used to retire a significant chunk of the firm’s net debt, which was reported to be sitting at $320.3 million in the second half of FY23.

Iress group CEO Marcus Price noted the deal is a significant milestone for the company.

“We are delighted to have found an acquirer in Bain Capital with the expertise and capital to appropriately invest in the growth of MSO for the benefit of its customers and employees,” Price said.

“The proceeds of the transaction will make a material difference to Iress’ net debt position, strengthening our balance sheet and providing greater ability to double-down and invest for growth in our core businesses of wealth, trading and market data and superannuation.”

Founded in 1993 by Peter Dunai, Neil Detering and Hung Do, Iress provides software and services for trading and market data, financial advice, investment management, mortgages, superannuation, life and pensions and data intelligence. The company’s software is used by 10,000-plus businesses and 500,000 users worldwide.

While the group has 2,000 employees based in Asia-Pacific, North America, Africa, the UK and Europe, about 15 per cent of staff were made redundant throughout 2023 to reduce operating costs.

For FY23, the group posted a statutory NPAT loss of $137 million compared to a profit of $52.7 million in the year prior. Iress said the loss was related to non-cash amortisation, depreciation and impairment expenses of $180 million. This was notably impacted by an impairment of $130 million on the UK goodwill carrying value which was written down in the first half of FY23.

Group revenue sat at $625 million, up from $615 million the year prior. Underlying EBITDA came in at $128.3 million, down 13 per cent year-on-year.

Price said it had been a “challenging year” for the business, but noted the balance sheet was strengthening with the sale of MFA, and future asset divestments in 2024 would be used to retire debt.

“Looking ahead, Iress is well positioned to grow in 2024, while also developing our product strategy to reinvent our world-class core platforms and capabilities for the future,” Price said to investors.

“We are progressing well - ahead of expectations - and remain on track to complete our transformation program by the end of FY24.”

Net proceeds from the latest deal are expected to sit between approximately AUD$135 million to $141 million. The sale is subject to the novation of the existing MSO client contracts to the new entity, as well as Competition and Markets Authority approval.

It comes more than a year sinceBain Capital agreed to purchase Sydney-based aged-care operator Estia Health for $838 million.

The transaction with Iress is expected to be completed by mid-2024.

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