The spread betting and contract for difference (CFD) operator IG Group has struck a deal to take over brokerage and “trading education” platform Tastytrade for a cool $1 billion (£7.279 billion/€8.236 billion). This comes after the company announced record earnings for the six-month period ending November 30, 2020.
Tastytrade is made up of two brands: the media brand Tastytrade, which offers training for traders in the options and futures markets; and brokerage platform Tastyworks, which boasts 105,000 active accounts and accounts for 1.3% of US equity options market volume.
The IG board stated: “Tastytrade equips aspiring retail traders with the knowledge and self-assurance to trade derivatives, while Tastyworks provides them with a robust, modern and user-friendly trading platform to put that knowledge into practice.”
IG Group stated that the agreement – which includes $300 million in cash and 61 million newly issued IG Group shares priced at $11.47 each – grants them access to the world’s largest derivatives market – the US, which is reported to have around 1.5 million retail traders.
Of the cash needed for the deal, £150 million will be sourced from new debt financing, with the remaining £68.3 million coming from existing funds. Upon completion of the transaction, Tastytrade shareholders will hold a 14.1% stake in IG Group.
IG Group declared that the takeover will enable them to provide a broader selection of offerings. Tastytrade specializes in choices and futures, which are well-liked in the American market, unlike IG’s concentration on CFDs and spread betting.
“I am thrilled to welcome Tastytrade to the IG Group family,” said June Felix, chief executive of IG. “This acquisition will considerably expand and enhance our operations in the American market and further diversify us into the exciting, rapidly developing American retail options and futures market, which is comparable to IG’s core retail trading abilities.
“The American market is home to over 1.5 million retail traders and is the world’s largest derivatives market. Tastytrade is expanding rapidly and has proven itself to be an innovative market disruptor with a passion for serving its customers.
“The financial and strategic justifications for this deal are very solid. I am confident that with our shared customer-focused approach, passion for innovation and growth, IG and tastytrade will be a great combination.”
Finally, IG Group stated that Tastytrade has quickly become a key player in the American brokerage market—with average annual revenue growth of 49% between 2018 and 2020, indicating a very strong business.
The takeover will also see four Tastytrade members join the IG Group board: CEO Scott Sheridan, co-CEOs Tom Sosnoff and Kristi Ross, and Chief Technology Officer Linwood Ma.
Sosnov stated the agreement enables Tastytrade to achieve its goal of becoming a worldwide platform.
“We’ve recognized Tastytrade as an exceptional business for a considerable period,” Sosnov said. “Although we’ve always been dedicated to global expansion, it’s taken us nearly a decade to locate the ideal partner and perfect match.
“We will collaborate to empower independent investors and alter how individuals perceive and engage in financial markets.”
The agreement is contingent upon competition and regulatory approvals. IG Group indicated it anticipates the deal to conclude within three months of August 31, 2021, which corresponds to the initial quarter of its 2021-22 fiscal year.
IG Group also disclosed its financial performance for the initial half of its 2020-21 fiscal year today. Net trading revenue exhibited a 67.1% year-on-year surge to £416.9 million.
Following the deduction of gambling taxes, interest on client funds, and other operating income, its net operating revenue attained £420.4 million, signifying a 64.8% year-on-year increase.
Concurrently, its operating expenses escalated by 22.1% to £188.2 million. IG Group disbursed £162.8 million in operating expenses, reflecting an 18.0% year-on-year rise, and £25.4 million in variable employee compensation, representing a 63.2% year-on-year surge.
This resulted in an operating profit expansion of 131.7% to £232.2 million.
After deducting £0.9 million in financial costs, IG Group’s aggregate pre-tax profit amounted to £231.3 million, signifying a 128.9% year-on-year increase.
The group paid £44.2 million in taxes, more than double the preceding year, culminating in a post-tax profit of £187.1 million, exhibiting a 127.2% year-on-year rise.
The company’s financial performance for this period is exceptional, setting new benchmarks for income and earnings. Pre-tax earnings have risen by a remarkable 129% compared to the previous period, Felix stated. This accomplishment wouldn’t have been feasible without the commitment of our workforce and the flexibility of our technology.
The company’s robust brand, dedication to customer service, and enhanced marketing initiatives have aided them in reaching a record 238,600 clients in the first half of this fiscal year.
The COVID-19 pandemic has generated considerable market volatility and opportunities for IG Group, resulting in a substantial increase in their revenue. In fiscal year 2020, they generated £649.2 million in revenue, with £259.5 million of that coming in the three months ending May 31, 2020.
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