The IG share price is down almost 9% today with investors reacting nervously to news the online trading group is to acquire U.S. peer Tastytrade in a $1 billion acquisition. The buy will represent the largest ever acquisition made in the FTSE 250 company’s history and deepens its exposure to the U.S. market.
The Tastytrade acquisition is IG Group’s first under CEO June Felix, who took on the role back in October 2018. The U.S. derivatives market is the world’s biggest, catering to around 1.5 million retail traders.
The larger part of the funds required to capitalise the deal will be raised by IG issuing equity in the company worth £514 million to Tastytrade shareholders, with the remaining balance of £220 million made up in cash. Commenting on the announcement, Ms Felix stated on behalf of IG:
“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.”
IG already has some business in the USA, with revenues from the country accounting for 4% of group turnover for the 12 months to the end of November. If IG had already owned Tastytrade over the same period, the U.S. business would have made up 13% of group turnover.
IG announced the Tastytrade deal while delivering its first-half results. The company, and sector as a whole, has been a beneficiary of Covid-19 pandemic restrictions. People spending more time at home and online has encouraged more to give online trading of financial markets a try. Or to increase activity due to more free time. Increased market volatility, which traders can profit from but also makes trading riskier, is also believed to be a factor. As a result, IG’s first half pre-tax profits more than doubled year-on-year.
IG was established in 1974 by spreadbetting pioneer Stuart Wheeler. However, it was the dawn of the era of the internet which really saw the business evolve. That opened up a new market for retail traders, when it had previously been restricted to institutional and professional investors. IG offers spreadbets and CFDs trading as well as standard stock market investing.
The use of leverage, which means traders can essentially borrow money to multiply the cash positions they take, has led to some accusations derivatives trading is too risky for small, retail investors. As a result, the amount of leverage trading platforms like IG are able to offer retail clients was recently capped by the FCA. But around 75% of IG’s retail traders still lose money.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.