Virtu Financial is to acquire KCG after entering into a definitive agreement in a deal estimated to be worth $1.4 billion or $20.00 per KCG share.
KCG said it had reached the decision following a thorough evaluation and the board of directors concluded the proposal provides compelling value for its stockholders.
“The combination of Virtu and KCG will create a true industry leader with greater diversification and scale,” KCG stated this afternoon.
The deal will see Virtu extend its operating model to KCG’s wholesale market making businesses and expand the distribution of its technology and execution services to KCG’s institutional client base.
Virtu said it expects to migrate trading of the combined company onto a single technology, risk management and analytics platform.
Doug Cifu, CEO at Virtu, explained KCG “fits perfectly” with Virtu’s strategic priorities to apply market making and technological expertise to its clients.
The combined entity will “expand Virtu’s growing agency execution business by offering clients a combination of Virtu and KCG’s superior algorithms and proprietary analytical tools,” he added.
Virtu said it will fund the takeover with gross borrowings of $1.65 billion and the sale of $750 million of common stock.
Announced in March this year, the deal could create one of the largest global high-frequency trading firms.
Both firms have seen revenues drop across trading and market making business units due to low volatility and decreased trading volumes.
In November, after Virtu announced a 25% reduction in its net trading income, Cifu said: “opportunities for most market participants and for market makers were limited by the depressed global volumes and realised volatility.”
Similarly, KCG’s market making business outside of US equities has struggled over the last year. Speaking on its quarterly earnings call Daniel Coleman, CEO at KCG, explained the non-US equities market making is a “concern and focus for the management team.”
The deal could create a global powerhouse for market making and high frequency trading. Both operate in the same markets, although use slightly different methods.
Following the close of the transaction, Cifu will remain CEO of the combined company and Joseph Molluso, Virtu's chief financial officer will remain CFO of the combined company.
Former CEO at Nasdaq, Robert Greifeld will also join the board of directors at Virtu immediately after the deal has closed.
Virtu concluded the merger is expected to close in the third quarter this year and is subject to regulatory approval.
KCG has cancelled its earning’s call due to be held today.