i3 Verticals’ Healthcare RCM Divestiture: A Strategic Shift or a Necessary Retreat?

In late 2024, i3 Verticals (NASDAQ: IIII) began a seismic shift in its corporate strategy, culminating in the 2025 divestiture of its Healthcare Revenue Cycle Management (RCM) division to Infinx, Inc. for $96 million. This move follows the company’s 2024 sale of its merchant services division to Payroc, marking a deliberate pivot toward a software-centric, vertically focused business model. But what does this mean for investors? Let’s dissect the implications.

The Divestiture Details

The Healthcare RCM division, which served academic medical centers and hospitals, was sold to Infinx—a privately held firm specializing in AI-driven healthcare solutions—on terms that include post-closing adjustments. The transaction, finalized in early 2025, aligns with i3 Verticals’ stated goal of streamlining operations to concentrate on its core vertical markets: Public Sector (K-12 education), Government, and software-as-a-service (SaaS) platforms.

While the sale price of $96 million may seem modest compared to the $440 million paid for its merchant services business in 2024, the strategic rationale is clear. CEO Greg Daily emphasized that i3 Verticals lacks the scale to compete effectively in a fragmented RCM sector, where giants like R1 RCM and Med-Matrix command premium valuations. By exiting, the company avoids the costly pursuit of regulatory compliance and operational complexity in healthcare billing.

Financial Implications: A Leaner, Meaner Balance Sheet

The divestiture further strengthens i3 Verticals’ financial profile. Proceeds from the RCM sale, combined with the 2024 merchant services windfall, have already reduced debt and bolstered liquidity. Post-merchant divestiture, the company reported a 12.1% year-over-year revenue increase in Q1 2025 for continuing operations, driven by SaaS growth and retained payment integration.

The sale also allows i3 to refocus on its high-margin software segments. For instance, its Public Sector division—which now dominates revenue—benefits from recurring SaaS contracts, a model with predictable cash flows. CEO Daily’s confidence is reflected in reaffirmed 2025 guidance: $243–263 million in revenue and $63–71.5 million in Adjusted EBITDA.

Market Context: The RCM Consolidation Boom

The RCM sector is ripe for consolidation. In 2025 alone, deals like GeBBS Healthcare’s $850 million acquisition by EQT—a transaction valued at 17x EBITDA—highlight investor enthusiasm for tech-driven platforms. Smaller players like MDaudit and Access Healthcare are also fetching elevated multiples, often between 12x–30x EBITDA for firms with AI tools and scalable solutions.

For i3 Verticals, exiting RCM now avoids getting left behind. While Infinx gains scale to compete in this high-growth arena, i3 can focus on its core verticals, where it holds market share and recurring revenue streams.

Risks and Considerations

Critics may argue that abandoning RCM risks ceding long-term growth opportunities. RCM’s EBITDA margins, though lower than software, were still positive. However, the trade-off is strategic clarity: i3 Verticals’ core markets face fewer regulatory hurdles and enjoy stronger recurring revenue trends.

Another risk lies in execution. Integrating the retained payment platform with its software solutions requires seamless execution to avoid customer attrition. Additionally, macroeconomic pressures, such as healthcare budget cuts, could dampen demand for SaaS solutions in education and government.

Conclusion: A Calculated Gamble, Backed by Data

The Healthcare RCM divestiture is best viewed as part of a broader, well-reasoned strategy. By exiting non-core segments, i3 Verticals has reduced complexity, improved margins, and sharpened its focus on high-growth verticals. Financial metrics back this thesis: post-merchant divestiture, Adjusted EBITDA margins rose to 26.5%, and SaaS revenue grew 16% year-over-year.

The $96 million sale to Infinx, while smaller than the merchant deal, aligns with market valuations for mid-sized RCM platforms (typically 6x–11x EBITDA). For investors, the key takeaway is that i3 Verticals is now a leaner, more focused software company with a clearer path to growth.

In a sector where scale and technology are king, i3 Verticals’ decision to prioritize its core markets—backed by its balance sheet and strategic clarity—positions it to capitalize on secular trends in SaaS and public-sector digitization. The jury is still out on whether this shift will deliver outsized returns, but the data so far suggests the company is on the right path.

Final Note: Monitor i3 Verticals’ Q2 2025 earnings call (scheduled for May 9, 2025) for updates on SaaS expansion and debt reduction. For context, compare its performance to peers like Tyler Technologies (TYL) in education software and Accolade (ACDL) in healthcare tech.

The verdict? A strategic retreat that could pay off handsomely—if execution holds.