ICAP, A UK-based interdealer broker, has agreed to buy Link Asset and Securities Company, a global equity derivatives broker. ICAP will buy 100% of the share capital of Link for an initial consideration of £135 million ($269.2 million), and will make the purchase through Intercapital, a wholly-owned subsidiary. ICAP expects the acquisition to be accretive to its 2008/9 adjusted earnings per share.
“Equity derivatives are one of the focus areas for our voice business, which we have identified as having faster structural growth opportunities,” said Michael Spencer, group CEO of ICAP, in a statement. “The market has expanded hugely during the past 5 to 7 years as a result of the search for yield, the demand for absolute returns and the emergence of volatility as a traded asset class in its own right. This is an important further step in building our overall capability in the equity markets.”
ICAP is buying Link from its shareholders – all of whom are directors or employees of Link. As well as the initial £135 million consideration, ICAP will pay them the amount by which Link’s net assets exceed its regulatory capital requirement, which will not exceed £30 million. ICAP will pay an additional deferred consideration equal to 25% of nine times the profit after tax for the year ended 31 March 2010 of the Link group, after it has been amalgamated with certain complementary ICAP businesses. The aggregate of the initial consideration and the deferred consideration is capped at £250 million.
The consideration to be paid to Link shareholders will be financed by debt. A £150 million term loan facility has been agreed to fund the initial consideration. This facility is in addition to the recently completed refinancing of ICAP’s existing debt with a new three year revolving agreement for £520 million of senior bank debt.
In the financial year ending December 2007, Link’s revenue was £81 million (up 68% on 2006) and pre-tax profit was £22 million. At 31 December 2007, the gross assets of Link were £45 million (net assets: £23 million) including cash of £25 million.
Following the acquisition, it is expected that all the senior management and staff of Link, including the two co-founders of Link – Charles Davies, Link’s CEO, and John Booth, Link’s chairman – will remain with the business within the ICAP Group.