The Board of
§ Landmark transaction that expands and diversifies IG's growth drivers through entry into the world's largest listed derivatives market. With an estimated 1.5 million retail traders, the US options and futures market is larger than the rest-of-world CFD/FX and European Turbo markets combined[ii].
§ tastytrade is highly complementary to IG's existing client offering, adding a leading[iii] provider of exchange traded derivatives and increasing the contribution from agency-only activities.
§ The transaction significantly increases the scale and relevance of IG's existing US business through the acquisition of a fast-growing, high margin business that is well positioned to benefit from the structural growth in self-directed investing in the US listed options and futures market.
§ IG and tastytrade share a strong culture and client-centric ethos; both companies also focus on the same client demographic of ambitious, self-directed retail traders.
§ Total consideration of
§ Following completion of the Acquisition, key tastytrade management shareholders, comprising
§ Financially attractive, with the Acquisition expected to be low single digit accretive to IG's adjusted earnings per share in the first full year post completion[v].
§ Completion of the Acquisition remains subject to the satisfaction of customary conditions, including regulatory and anti-trust consents in the US.
1. Information on tastytrade
tastytrade is a unique and fast-growing platform that provides differentiated financial content and trader education alongside a sophisticated options and futures brokerage. tastytrade was founded and is led by an entrepreneurial management team who previously created the highly successful options and futures trading platform, thinkorswim (acquired by
Founded in 2011, tastytrade's focus on trader education and original content, alongside its sophisticated brokerage offering, provides a clear competitive advantage over peers. With c.900,000 unique registrants, tastytrade is one of the most watched financial networks in the world[vii], engaging traders across 190 countries, with 8 hours of cost-free, commercial-free, live interactive content daily, providing market commentary and actionable trading strategies related to options and futures trading and the stock market. Distributed through www.tastytrade.com, YouTube, iTunes, Apple TV, and others, the 50+ shows per week appeal to both beginner and advanced traders.
Launched in 2017, tastyworks is already a leading independent online brokerage platform for US exchange traded derivatives traders with a platform built on proprietary and highly scalable technology. Reflecting its distinctive client-focused philosophy and appeal to a wide client demographic, tastyworks has built a strong and fast-growing client base, which today comprises over 105,000 active accounts[viii], and represents c.1.3% of the entire US equity options market (institutional and retail) by volume traded[ix], while being ranked by Barron's as the second best online brokerage platform for active traders[x].
Together, tastytrade provides ambitious retail traders with the education and confidence to trade in derivative products, whilst tastyworks provides them with a powerful, modern and easy-to-use trading platform to utilise this knowledge.
tastytrade is headquartered in
In
For the financial year to
2. Background to and Reasons for the Acquisition
IG's strategy
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. As the world's number 1 provider of contracts for difference (CFDs)[xv] and an established player in the foreign exchange (FX, forex) market, IG is already one of the foremost trading platforms in its Core Markets, including the
Beyond its Core Markets, IG's strategy is focused on its Significant Opportunities portfolio, comprising the US,
IG has had a presence in the US retail trading market since 2007 through
Compelling strategic benefits for IG
Provides IG with immediate scale in the world's largest listed options and futures market
§ Establishes IG as an important player in the highly attractive and growing listed US options and futures market. With an estimated 1.5 million retail traders, the US options and futures market is larger than the global CFD/FX and European Turbo markets combined[xvi].
- The US equity options market grew at a CAGR of c.24% between 2017 and 2020, with average daily volume (ADV) of 27.7 million contracts for 2020[xvii]. During 2020, the number of options and futures traders grew by c.108%[xviii], reflecting growing retail appetite for options and futures trading following a period of heightened market volatility.
- Continued attractive market growth expected, driven by favourable structural trends, including the on-going shift towards self-directed investing and the continued 'democratisation' of financial markets. Retail participation has increased to nearly 25% of the entire US equity market in 2020 from a range of 10% to 15% over the previous four years, driven by improvements in technology and trader education, as well as greater market accessibility[xix].
- tastytrade's brokerage, tastyworks, has grown its share of the US equity options market by volume from 0.4% at launch in 2017 to 1.3%[xx] in 2020, reflecting its highly differentiated, education-led proposition for the retail client base.
§ Transforms the scale and breadth of IG's existing US presence through
- Adds exchange traded futures, options and stock trading to IG's existing US product set comprising FX (through the RFED) and binaries (through
- Both IG and tastytrade target a similar demographic of knowledgeable, self-directed retail traders. Over time, the enhanced client proposition is anticipated to translate into higher retention rates and revenue per client from the combined US client base.
Extends IG's global product capabilities into exchange traded options and futures, increasing the contribution from agency-only activities
§ Diversifies IG's regulatory risk profile beyond its historical focus on OTC trading into US exchange traded derivatives.
§ Increases the proportion of Group revenues from agency-only activities reflecting tastytrade's capital efficient business model[xxi].
- As a result of the Acquisition, IG's revenues linked to OTC derivatives would be expected to reduce from c.94% for the twelve months ended
§ Combines IG's market-leading presence in the leveraged OTC space with tastytrade's highly complementary expertise in the exchange traded options and futures market, enabling IG to offer a broader suite of derivatives products to clients.
§ Longer-term opportunity for greater client penetration and cross-selling internationally through a broader proposition. 15% of tastytrade's funded accounts who seek to trade US exchange traded derivatives[xxiii] are located outside the US. As tastytrade has a very small footprint outside the US, these clients represent unsolicited, inbound demand which highlights the attractiveness of the international growth opportunity over time. tastytrade recently established brokerage operations in
Diversifies IG's geographic footprint and accelerates growth ambitions
§ Further enhances IG's position as a global multi-product trading platform with a leading presence in key global financial markets (US,
- On a pro forma basis, based on tastytrade's unaudited financial results ended
§ Accelerates IG's Significant Opportunities portfolio growth strategy.
- IG is well on track to achieve its published target of generating an additional £100 million of revenue, to around £160 million, from the Significant Opportunities portfolio by the end of the financial year ending
Acquisition of a high growth, high margin business
§ tastytrade has demonstrated exceptional client and revenue growth reflecting its strong and differentiated proposition within the expanding US options and futures market.
- tastytrade's revenues grew at a CAGR of 49% between financial years ended
- tastytrade generated an adjusted EBITDA margin of 47% in the year ended 31 December 2020[xxvii] reflecting the highly scalable nature of its proprietary platform.
- tastytrade is well positioned to benefit from any recovery in US interest rates through higher interest income earned on client balances.
IG and tastytrade share a strong culture and client-centric ethos; both companies also focus on the same customer demographic of ambitious, self-directed traders
§ IG brings a track record of over 45 years in innovation and leadership in OTC products for a global, high-value client base and a modern, robust and scalable infrastructure.
§ tastytrade brings a leadership position in the attractive US listed derivatives market, a 105,000+[xxviii] active retail client account base with high levels of retention, and an agency-only business model with significant growth potential.
§ Similar focus on ambitious, self-directed traders.
§ Shared focus on client service and the importance of trader education to raise clients' knowledge, awareness and confidence in trading financial products.
§ Shared passion for innovation.
§ Common entrepreneurial ethos combined with a culture of regulatory compliance and client-centric focus.
Strong financial rationale
Clear financial benefits for IG's shareholders
§ Further strengthens IG's profitability and cash flow profiles.
§ Positions IG to drive additional long-term earnings growth through the acquisition of a fast-growing business operating at attractive profit margins and delivering strong cash conversion.
§ Transaction expected to be low single digit accretive to IG's adjusted earnings per share[xxix] in the first full year post completion.
Lower risk transaction with limited integration
§ No significant or complicated integration required, minimising integration risk and associated costs.
§ No cost synergies from tastytrade required, given complementary products and business operations.
§ Attractive acquisition opportunity in options and futures trading that is adjacent to IG's core retail trading proposition, complementing IG's existing organic growth strategy in its Core Markets.
§ Experienced senior management team with a proven track record.
§ Alignment of interests through phased five year lock-up period on IG shares for key tastytrade management shareholders.
§ Management continuity enabled through four year retention program for other employees, funded by tastytrade's shareholders.
§ Limited risk of client attrition, with tastytrade to continue to operate as a standalone division under its existing brands.
3. Key Transaction Terms
§ Total consideration of
§ Cash requirement to be funded by £150 million of new debt facilities with the balance from IG's own cash resources.
§ At completion:
- tastytrade shareholders will own, in aggregate, approximately 14.1% of the enlarged share capital of IG.
- Key tastytrade management shareholders, comprising
- These individuals have also entered into full-time employment contracts with IG which contain comprehensive non-compete and non-solicit obligations.
- tastytrade's two largest institutional shareholders, TCV and Lightbank, will also become shareholders in IG with an approximate 5.7% shareholding and will have a six month lock-up period post completion.
§ Completion of the Acquisition is anticipated to occur in the first quarter of financial year ending
Enquiries:
+44 (0) 20 7573 0727
investors@ig.com
+44 (0) 73 8844 0127 +44 (0) 20 7896 0011
press@ig.com
+44 (0) 77 03 330 199
+44 (0) 77 71 978 220
+1 212 284 4667
+44 (0) 20 7548 4230
+1 212 323 3925
+44 (0) 20 7382 2239
+44 (0) 20 7382 8141
+44 (0) 20 7382 8144
Barclays (Financial Advisor and Corporate Broker to IG)
+44 (0) 20 7773 8824
+44 (0) 20 7116 2828
+44 (0) 20 3134 9920
Numis (Financial Advisor and Corporate Broker to IG)
+44 (0) 20 7260 1000
+44 (0) 20 7260 1000
[i] Represents accounts that traded at least once during the 12 months ended
[ii] Latest Investment Trends market reports and internal estimates.
[iii] tastyworks was ranked the second best online broker for active traders by Barron's in its "Best Online Brokers for 2020" report.
[iv] Based on the 40 day Volume Weighted Average Price up to and including the
[v] EPS presented on adjusted basis to exclude amortisation of acquired intangibles (non cash), utilisation of transaction-related DTA (non cash), compensation expense related to the vesting of tastytrade employee retention package, and one-off transaction costs.
[vi] Based on number of trades for the twelve months ended
[vii] Based on YouTube subscribers among the leading US brokerages.
[viii] Represents accounts that traded at least once during the 12 months ended
[ix] For the twelve months ended
[x] Source Barron's, "Best Online Brokers for 2020" report.
[xi] Financial information for year ended
[xii] Financial information for year ended
[xiii] Represents growth in accounts that traded at least once during the 12 months ended
[xiv] Financial information for year ended
[xv] Based on revenue excluding FX (from published financial statements, June 2020).
[xvi] Latest Investment Trends market reports and internal estimates.
[xvii] Source: OCC.
[xviii] Source: Investment Trends 2020 US Active Trader Report.
[xix] Public Rule 605 filings.
[xx] For the twelve months ended
[xxi] As at
[xxii] Pro forma based on adding IG's IFRS unaudited figures for the twelve months ended
[xxiii] As at
[xxiv] Pro forma figure based on adding IG's number of active clients with tastytrade's active accounts. Active client for IG is defined as any client who has generated revenue through leveraged trading, or was holding a stockbroking position for the 6 months period ended
[xxv] Pro forma figure based on adding IG's IFRS unaudited figures for the twelve months ended
[xxvi] CAGR based on tastytrade's revenue figures on a US GAAP basis. Revenue for financial year ended
[xxvii] Figures for financial year ended
[xxviii] Represents accounts that traded at least once during the 12 months ended
[xxix] EPS presented on adjusted basis to exclude amortisation of acquired intangibles (non-cash), utilisation of transaction-related DTA (non-cash), compensation expense related to the vesting of tastytrade employee retention package, and one-off transaction costs.
[xxx] Currencies converted from USD to GBP at a rate of 1.3617 as of
[xxxi] Based on the 40 day Volume Weighted Average Price up to and including the
.
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