02:28 PM EDT, 03/20/2024 (MT Newswires) -- Alight (ALIT) agreed to sell its entire professional services segment as well as a payroll and outsourcing business to an affiliate of investment firm H.I.G. Capital on Wednesday for up to $1.2 billion.

The deal will see Alight, which reports as a two-segment company, separate from its smaller professional services division. In 2023, the segment's revenue rose more than 13% to $421 million. The transaction also includes the payroll and human capital management outsourcing business within Alight's larger employer solution segment, which made $2.96 billion last year.

H.I.G. Capital will pay $1 billion in cash and up to $200 million in seller notes, of which $150 million is contingent upon the payroll and professional services business' 2025 financial performance. "We see a tremendous opportunity for continued growth," H.I.G. Managing Director Matt Lozow said in a statement.

The purchase price values the combined payroll and professional services business at a multiple roughly 10 times its estimated 2023 adjusted earnings before interest, taxes, depreciation, and amortization. Shares of Alight rocketed 12% in afternoon trade.

Alight and the payroll and professional services business have agreed to strike a new commercial partnership after the deal closes to "bolster their collective competitiveness." The deal is expected to close by mid-2024, subject to customary closing conditions and regulatory approvals.

"This strategic transaction results in a more agile Alight and enhances our competitiveness as we strengthen our technology and services value proposition," Alight Chief Executive Stephan Scholl said in a statement.

The cloud-based human capital platform called the transaction a "pivotal step" in accelerating its simplification into a focused employee wellbeing and benefits platform company. The company plans to concentrate resources on the Alight Worklife platform as well as its service capabilities and go-to-market strategy to drive improved client cost and productivity outcomes, it said.

Alight estimates it will achieve nearly 300 basis points of adjusted EBITDA margin expansion upon the deal's closing. The company increased its mid-term adjusted EBITDA margin target to 28%, implying up to 600 basis points of potential margin expansion over 2023. It plans to update its 2024 guidance after the deal closes.

Price: 9.93, Change: +1.09, Percent Change: +12.33