i3 Verticals' Strategic M&A Momentum: A High-Conviction Play in Vertical Market Software and Payments

In an era where fintech's growth is increasingly defined by specialization and recurring revenue models, i3 Verticals (NASDAQ: ITHREE) has emerged as a compelling case study in disciplined, value-adding M&A. The company's strategic realignment—exiting non-core fintech segments to focus on mission-critical software for the public sector—positions it as a high-conviction play in vertical market software and payments. By leveraging acquisitions to scale in high-growth government technology verticals, i3 Verticals is not only navigating the evolving fintech landscape but redefining it.

Strategic Realignment: From Fintech to Government Tech

i3 Verticals' recent divestitures of its Healthcare Revenue Cycle Management (RCM) and Merchant Services businesses—completed in May 2025 and September 2024, respectively—were not retreats but calculated moves. These exits freed up capital and operational focus, enabling the company to double down on its core strength: cloud-native software solutions for state and local governments. The shift is evident in its financials. For Q3 2025, revenue from continuing operations rose 12.4% year-over-year to $51.9 million, with SaaS revenue surging 24% to $160.8 million in annualized recurring revenue (ARR). Adjusted EBITDA hit $12.7 million, up 18% year-over-year, while the net loss narrowed from $14.4 million to $1 million.

The company's M&A strategy is now laser-focused on verticals with structural tailwinds. Justice Tech, for instance, has become a cornerstone. By integrating AI-driven tools like chatbots for court services and automated land records systems, i3 Verticals is addressing pain points in government efficiency. These innovations are not just incremental—they're transformative. For example, AI-enhanced land records systems have already driven incremental revenue and improved user satisfaction, aligning with the broader fintech trend of leveraging automation to reduce costs and enhance customer experience.

M&A as a Catalyst for Long-Term Value

i3 Verticals' M&A approach is disciplined and selective. The company's leadership has emphasized targeting acquisitions that expand its footprint in public sector verticals, such as transportation and utilities, where demand for digital transformation is surging. While specific targets remain undisclosed, the company's $50 million cash reserves and $207–$217 million revenue guidance for 2025 suggest a robust pipeline. This capital discipline is critical: M&A-related expenses in Q3 2025 totaled $5.37 million, but these were offset by $4.24 million in post-sale income from divestitures, demonstrating a balanced approach to capital allocation.

The strategic rationale is clear. Government technology markets are expanding as states and municipalities prioritize modernization. i3 Verticals' focus on recurring revenue models—via SaaS contracts and subscription-based payments—ensures predictable cash flows, a stark contrast to the transactional nature of traditional fintech. This model also insulates the company from short-term volatility, a key consideration for long-term investors.

Risks and Rewards in a Shifting Landscape

Critics may question whether i3 Verticals' pivot to public sector software limits its exposure to broader fintech trends. However, the company's alignment with government technology is a strength, not a constraint. Public sector IT spending is projected to grow at a 7.2% CAGR through 2030, driven by aging infrastructure and digital equity initiatives. i3 Verticals' AI investments and talent acquisitions in Justice Tech position it to capture this growth.

That said, short-term headwinds exist. The company has acknowledged that AI and talent investments will pressure Q4 2025 results. Yet these are strategic trade-offs for long-term gains. The 24% SaaS growth in Q3 2025 and 18% adjusted EBITDA increase prove that the model is scalable.

Investment Thesis: A High-Conviction Play

For investors seeking exposure to fintech's next frontier, i3 Verticals offers a compelling mix of disciplined M&A, recurring revenue, and alignment with structural trends. Its strategic focus on public sector software—where competition is less crowded and margins are expanding—creates a durable moat. The company's 2025 guidance, with adjusted EBITDA projected at $55–$61 million, further underscores its value proposition.

The key risks include execution on M&A integration and macroeconomic headwinds in government spending. However, i3 Verticals' cash position and focus on high-margin SaaS contracts mitigate these concerns. For long-term investors, the company's strategic clarity and financial discipline make it a high-conviction play.

Conclusion

i3 Verticals' journey from a diversified fintech player to a focused public sector software leader is a masterclass in strategic M&A. By exiting non-core segments and reinvesting in high-growth verticals, the company has positioned itself to capitalize on the digital transformation of government. As the fintech landscape evolves, i3 Verticals' disciplined approach to value creation—through recurring revenue, AI innovation, and targeted acquisitions—offers a roadmap for sustainable shareholder returns. For investors with a multi-year horizon, this is a stock worth watching.