IG Group has agreed to buy U.S. online brokerage Tastytrade for $1 billion, in a move that gives the U.K.-listed spread betting company a foothold in the world’s largest derivatives market.
The deal — the biggest ever acquisition for FTSE 250-listed IG Group
— comprises $300 million in cash and the issuance of 61 million IG shares valued at $700 million to Tastytrade shareholders, the company said in a statement on Thursday.
Shares in IG
which rose as much as 1.7% after the deal was announced, pared back gains to trade 1.28% lower at 9:50 a.m. GMT in London.
“This acquisition will materially expand and scale our business in the U.S. and see us further diversify into the exciting high growth market of U.S. retail options and futures,” said IG Chief Executive June Felix.
“The U.S. market has more than 1.5 million retail traders and is the largest derivatives market in the world,” she added.
Online brokerage platforms have been booming during the COVID-19 pandemic, as market volatility and day traders stuck at home amid lockdown restrictions aimed at containing the spread of coronavirus have attracted more retail customers.
U.S. options trading volumes have grown significantly, with record levels in 2020, including the highest volume month ever in December, according to Jefferies, which advised IG on the acquisition. It said the market has grown at a 24% compound annual growth rate since 2017, with Tastytrade growing at three times the market over the same period.
Analysts at Citigroup said the deal expands IG’s product reach, which has been widening in recent years with the addition of stockbroking and the multilateral trading facility Spectrum and its retail foreign exchange dealer business in the U.S.
“Despite no announced deal synergies the deal is expected to be low single-digit EPS [earnings per share] accretive in year one, and we expect IG to be able to cross-sell the Tastytrade options to a number of IG’s existing customers,” the Citigroup analysts wrote in a research note to clients on Thursday.
The acquisition comes after a strong year of growth for IG, which on Thursday reported a record trading period in the six months to Nov. 30. As market volatility helped drive up trading volumes and its client base, the number of IG’s active clients rose 55% to 238,600 during the period.
IG’s net trading revenue rose 67% to £416.9 million, while profit before tax surged 129% to £231.3 million, from £101.2 million in 2019.
“We believe there will be a more long-term benefit to IG of the exceptional results it delivered in 2020 through the COVID-19 uncertainty,” said analysts at RBC Capital.
Based in Chicago, Tastytrade has 105,000 active accounts trading options, as well as futures and equities, and another 800,000 that watch its live online streaming of market commentary and trading strategies on its own website, YouTube, iTunes and Apple TV
“Tastytrade has demonstrated high growth with 2020, in a year when retail trading has boomed in the U.S. In 2020 revenue was 44% up YoY [year-over-year], with growth in active accounts of 85% whilst adjusted Ebitda [earnings before interest, taxes, depreciation and amortization] rose 43%,” added the RBC analysts.
IG, which was advised by investment bank Jefferies
on the acquisition, expects the deal to complete in the summer of 2021.