M&A

IG Group set to acquire Tastytrade for $1bn after record H1 revenue

4 minutes read
Spread betting and contracts for difference (CFD) operator IG Group has agreed to acquire brokerage and “ trading education” platform Tastytrade for $1.0bn (£727.9m/€823.6m), after reporting record revenue for the six months ended 30 November 2020.

Tastytrade consists of two brands: media brand Tastytrade, which offers education to traders about options and futures markets; and brokerage platform Tastyworks, which boasts 105,000 active accounts and makes up 1.3% of the entire US equity options market by trading volume.

“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,” IG’s board said.

IG Group said the deal – consisting of a  $300m cash sum and 61.0m new IG Group shares priced at $11.47 each – allows it to enter the world’s largest derivatives market, the US, which it says includes around 1.5m retail traders.

Of the cash sum required for the deal, £150m will come from new debt facilities and the remaining £68.3m from existing cash. Upon completion, Tastytrade shareholders will hold 14.1% of IG Group shares.

IG Group said the acquisition also allows it to diversify its offering as Tastytrade focuses mostly on options and futures, which are popular assets in the US market, rather than spread betting and CFDs.

“I am thrilled to welcome Tastytrade to the IG Group family,” IG chief executive June Felix said. “This acquisition will materially expand and scale our business in the US and see us further diversify into the exciting high growth market of US retail options and futures, a market which is adjacent to IG’s core retail trading skill set. 

“The US market has more than 1.5 million retail traders and is the largest derivatives market in the world. Tastytrade has grown impressively and proven itself to be an innovative market disrupter passionately committed to delivering for their clients. 

“The financial and strategic rationale underpinning this deal are compelling. I am confident that with our shared client-centric ethos, passion for innovation and growth, IG and tastytrade will prove a winning combination.” 

Finally, IG Group said Tastytrade’s fast growth to a major player in the US brokerage market – with annual revenue growth averaging 49% between the 2018 and 2020 calendar years, showed it was a very strong business.

The acquisition will also see four Tastytrade members join the IG Group board: chief executive Scott Sheridan, co-chief executives Tom Sosnoff and Kristi Ross and chief technology officer Linwood Ma.

Sosnoff said the deal allowed Tastytrade to achieve its goal of becoming a global platform.

“Early on we knew Tastytrade was a very special company,” Sosnoff said. “While our long-term goal has always been to go global, we waited almost 10 years until we found the right partner and perfect match. 

“Together we will focus on empowering the self-directed investor and change the way people perceive and engage with financial markets.”

The deal is subject to approval from competition and regulatory authorities. IG Group said it expects the deal to close in the three months ended 31 August 2021, the first quarter of its 2021-22 financial year.

IG also announced its financial results for the first half of its 2020-21 year today. Net trading revenue was up 67.1% year-on-year to £416.9m.

After paying betting duty and accounting for interest on client funds and other operating income, its net operating revenue came to £420.4m, up 64.8%.

Its operating costs, meanwhile, grew 22.1% to £188.2m. The IG Group paid £162.8m in operating expenses, up 18.0%, plus £25.4m in variable remuneration of staff, a 63.2% year-on-year increase.

This led to an operating profit increasing by 131.7% to £232.2m.

After financial costs of £900,000, IG Group’s pre-tax profit totalled £231.3m, up 128.9%.

The group paid £44.2m in tax, more than double its tax bill from the prior year, leasing to a post-tax profit of £187.1m, up 127.2% year-on-year.

“Our financial performance metrics in the period have been outstanding, delivering record revenue and profits, with profit before tax 129% higher than the prior period,” Felix said. “This performance would not have been possible without the continued commitment of our people and the resilience and flexibility of our technology.

“Our strong brand, long-standing commitment to client service and improvements to our marketing capability have supported a record 238,600 clients trading with us during the first half of the financial year.”

The market volatility and acquisition opportunities from the novel coronavirus (Covid-19) pandemic have significantly boosted the IG Group’s revenue. In the 2020 fiscal year, the group took in revenue of £649.2m, of which £259.5m was made in the three months ended 31 May 2020.

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