Virtu Financial has continued to expand its business by entering into a definitive agreement to acquire Investment Technology Group (ITG) in a cash transaction valued at $30.30 per ITG share, for a total of $1 billion. The deal has been rumoured for several months, as reported by Profit & Loss in October.
Describing what it terms as a “significant acquisition” Virtu says the deal underscores its commitment to its institutional client franchises and is a natural next step in its growth by offering its clients a complete suite of agency services, including transparent trading and workflow technology, analytics, and liquidity solutions that all leverage Virtu’s global, scaled technology infrastructure.
“Virtu’s focus and investment in our agency offering is evidenced by the continued growth in our business and the strong uptick we’ve seen this year and through October, says Douglas Cifu, Virtu’s CEO. “The combination announced today brings together complementary strengths that amplify our ability to help our clients source liquidity and improve their workflow.
“ITG has built a first‐class global institutional client franchise with incredible people that will benefit from this strategic combination,” he continues. “We are fully committed to growing and improving the complete agency execution offering that ITG’s clients use every day – liquidity, execution services, workflow technology and analytics. This combination will leverage Virtu’s financial technology – the same technology that drives our market making performance – to optimise all aspects of the business, from order routing and algo performance to middle‐and back‐office efficiency.”
The transaction is expected to close during the 1st half of 2019 after receipt of ITG shareholder and all required regulatory approvals. Virtu says the transaction is expected to provide a significant amount of additional scale and financial benefits to the firm. “Within two years of the completion of the transaction, Virtu expects to realise approximately $123 million of net pre‐tax expense savings, in addition to $125 million of capital synergies,” it says. “These savings do not include any revenue enhancements that Virtu anticipates will result from the transaction.”
The transaction further diversifies Virtu by increasing its revenue contribution from Technology and Execution Services from 10% to 37%, which it says will lower quarter‐to‐quarter earnings volatility. “Technology and Execution Services is highly complementary to Virtu’s core market making business, providing further opportunities to organically grow revenue with existing clients and technology,” the firm says.
No details of management changes post-transaction were given beyond the statement that Cifu will continue as CEO of the combined firm, and Joseph Molluso will continue as CFO.