While seemingly anti-climactic, Virtu and ITG have confirmed that the latter will be acquired by the former.
Virtu Financial, Inc. officially announced that it has entered into a definitive agreement to acquire Investment Technology Group, Inc., which has been unanimously approved by the Board of Directors of ITG and Virtu. Virtu has agreed to acquire ITG in a cash transaction valued at $30.30 per ITG share.
Clients to benefit from the combination of ITGs world-class execution services, workflow solutions, and analytics offerings with Virtus technological excellence, operational efficiency, and deep liquidity. Also, Virtu will increase its operating scale and organic revenue growth profile through the addition of ITG. Lastly, the transaction further diversifies Virtu following the successful acquisition of KCG, increasing stability of future earnings.
As per a press release from both Virtu and ITG, the acquisition underscores Virtus 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 Virtus global, scaled technology infrastructure.
Virtus focus and investment in our agency offering is evidenced by the continued growth in our business and the strong uptick weve seen this year and through October. The combination announced today brings together complementary strengths that amplify our ability to help our clients source liquidity and improve their workflow,” said Douglas A. Cifu, Virtus Chief Executive Officer.
Cifu continued, ITG has built a first-class global institutional client franchise with incredible people that will benefit from this strategic combination. We are fully committed to growing and improving the complete agency execution offering that ITGs clients use every day – Liquidity, Execution Services, Workflow Technology and Analytics. This combination will leverage Virtus financial technology – the same technology that drives our market making performance – to optimize 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 approval and all required regulatory approvals.
Significant Value Creation through Operating Scale
In addition to enhanced client experience, the transaction is expected to provide a significant amount of additional scale and financial benefits to Virtu. Within two years of the completion of the transaction, Virtu expects to realize approximately $123 million of net pre-tax expense savings, in addition to $125 million of capital synergies. These savings do not include any revenue enhancements that Virtu anticipates will result from the transaction.
Increased Diversification and Organic Growth Profile
The transaction further diversifies Virtu by increasing its revenue contribution from Technology and Execution Services from 10% to 37%, which will lower quarter-to-quarter earnings volatility. Technology and Execution Services is highly complementary to Virtus core market making business, providing further opportunities to organically grow revenue with existing clients and technology.
Transaction Terms, Approvals and Timing
Virtu intends to fund the all-cash transaction with new gross borrowings of $1.5 billion. Virtu intends to repay the $400 million aggregate principal amount outstanding under its existing term loan.
Virtu has received committed financing from Jefferies and Royal Bank of Canada for up to $1.5 billion of debt financing for the transaction.
Virtu intends to maintain its annual dividend of $0.96 per share after the close of the transaction.
The transaction is subject to customary closing conditions, including the approval of the stockholders of ITG, and receipt of required regulatory clearances and approvals.
Organization and Leadership
Following the close of the transaction, Douglas A. Cifu, Chief Executive Officer of Virtu Financial, will remain CEO of the combined company. Joseph A. Molluso, Virtus Chief Financial Officer, will remain the CFO of the combined company.
Jefferies LLC is acting as lead financial advisor to Virtu. Sandler ONeill + Partners is also acting as financial advisor to Virtu and has provided a fairness opinion. Jefferies Finance LLC and Royal Bank of Canada (RBC) have provided committed debt financing for the acquisition. RBC also provided financial advice. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as Virtus legal counsel. J.P. Morgan Securities LLC is acting as financial advisor to ITG with Wachtell, Lipton, Rosen & Katz serving as ITGs legal counsel.