IG Group’s $1 billion Acquisition of Tastytrade
Deal Overview
- Announcement date: 21 January 2021
- Industry: Financial Services
- Deal value: $1 billion
- Deal consideration: $300 million cash and 61 million IG Group Shares worth roughly $700
million - Acquirer advisors: Jefferies and Fenchurch Advisory Partners LLP (Barclays and Numis served as financial advisors and corporate brokers)
- Target advisors: N/A
Company details: IG Group
- Founded: 1974
- HQ: London, United Kingdom
- Market Cap: £3.15B
- EV: £2.77B
- Revenue (TTM): £808.9 million
- Gross profit (TTM): £364.5 million
IG is an award-winning, multi-product trading company providing retail, professional and institutional clients with access to trading opportunities in over 17,000 financial markets. It is the number 1 provider of CFDs worldwide, with operations in 17 countries.
Company Details: Tastytrade
- Founded: 2011
- HQ: Chicago Illinois
- Financial year to 31st December 2020: Revenue of $116.2m
- Adjusted EBITDA:$54.1 million
- Profit Before Tax:$49.0 million
- Employees: 145
- Raised a total of $47 million across 3 funding rounds
Tastytrade is a US based platform that provides differentiated financial content, retail trader education and brokerage services. Whilst they have an extremely strong D2C business model, providing online financial content to over 900,000 subscribers globally, more impressively the brokerage side of the business has grown rapidly in four short years, currently ranking as the second best online broker for active traders globally.
Strategic Rationale
Push into the US Market
Since its inception, The IG Group has primarily serviced clients in the UK and in wider Europe, with less focus on the wider global landscape. Even as recently as 2019, The IG Group, only garnered 18,300 active US clients bringing in around £17m annual revenue, compared to the mammoth £111.9m on the EMEA side of the business. However, with extremely favourable market conditions, in part created by the hyper demand for retail trading services during the pandemic, IG Groups’ strategic acquisition of TastyTrade will provide the firm with a prime opportunity to break into a market with strong growth potential. In particular, IG Group CEO, June Yee Felix, noted that the ‘US retail option and futures’ market strongly complements ‘IG’s core retail trading skill set’ and this in turn could be part of the initial strategy for expansion through the US. Of note, is the magnitude of the US market which has more than 1.5 million retail traders and is the largest derivatives market in the world. It is also important to frame this acquisition within the broader global strategy of the group, who have not only recently opened an office in Hong Kong with imminent plans to expand into greater China, but have also appointed a ‘high quality Japanese CEO’ to tap into the lucrative Japanese market, with over 2m traders.
Long term goals/specific type of client
Whilst speculative retail trading is at an all time high amidst the pandemic, The IG Group believe they are buying into a long term secular shift toward self directed trading, rather than a Covid-inflated bubble. Whilst eToro may have just announced a $10billion SPAC IPO, IG Group are targeting a specific clientele, which may differentiate them from the impressive competition they face in the market. In reference to the acquisition of TastyTrade, IG Group CEO June Felix, noted,‘ this is not Robinhood, this is a deal focused on customers who know what they’re doing.’ They are hoping to target clients who are ‘on average, 50 years old and wealthy’, leveraging Tasty Trades impressive channels of content distribution and strong market strength to do so.
Potential risks
Following Robinhood’s decision to halt trading of GameStop shares on their site amidst the pandemonium which ensued following the short squeeze on the stock, there has been a growing sentiment of distrust amongst retail traders who no longer feel trading platforms are prioritising the needs of their clients. However more worryingly for The IG Group, the entire debacle has accentuated the need for growing regulation in the retail trading market. With the incoming US Securities Exchange Commission chairman Gary Gensler yet to lay out his priorities, the extent to which the retail trading market as a whole, and more specifically the options and futures sector is regulated, will almost certainly impact IG Groups’s trajectory in the US market.
Shareholders
There is also a growing sentiment that the $1bn price tag that IG Group forked out for TastyTraders was far above the fair value, and in turn the markets have reacted strongly to the announced deal. Immediately following the announcement there was a sharp fall in IG Groups share price, at one point falling 13.3% to 787p.
When will the deal go through?
The completion of the acquisition is expected in the first quarter of IG Group’s financial year ending May 31, 2022, subject to satisfaction of customary conditions. These include receipt of relevant anti- trust and regulatory approvals from US regulatory bodies, including FINRA, as the deal involves the acquisition of 25% or more of a registered broker-dealer.
By Samuel Miller, Cass Business School
