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ICAP reaches agreement to acquire Link

ICAP plc (IAP.L) the world’s premier voice and electronic interdealer broker has agreed to acquire, through its wholly owned subsidiary Intercapital plc, all of the share capital of The Link Asset and Securities Company Limited (Link), the leading specialist global equity derivatives broker for an initial consideration of £135 million.

Michael Spencer, Group Chief Executive of ICAP, commented “We are very pleased to have reached agreement to acquire Link. The company enjoys a very strong market position as the leading global equity derivatives broker with 136 staff covering Europe, the Americas and Asia. From its three offices in London, New York and Hong Kong it services over 500 customers.

We have been very clear that our strategy is to grow ICAP’s business both organically and by selected acquisition. Equity derivatives are one of the “focus” areas for our voice business which we have identified as having faster structural growth opportunities. The market has expanded hugely during the past 5-7 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.”

Charlie Davies, Group Chief Executive of Link, commented "Since its launch in 1997, Link has established itself as the pre-eminent broker in equity derivatives globally. In these markets, where risk can be complex and non-standard, our ability to understand and relay financial information in an efficient and knowledgeable way, greatly adds to the liquidity available to our clients.

Our strategy is completely consistent with ICAP's and our cultures are complementary. We plan to combine Link’s strengths in index and single stock derivatives with the majority of ICAP’s existing equity derivatives business outside the US and do not expect there to be any significant overlap. We firmly believe that this combination will be good for our customers and both organisations."

ICAP has agreed to purchase 100% of the share capital of Link from its shareholders all of whom are directors or employees of Link. ICAP will pay an initial consideration of £135 million plus the amount by which Link’s net assets exceed its regulatory capital requirement, which will not exceed £30 million. ICAP will pay an additional amount by way of 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 £81million (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 Chief Executive Officer, 38 and John Booth, the Chairman of Link, 49, will remain with the business within the ICAP Group.

The acquisition is expected to be accretive to ICAP’s 2008/9 adjusted earnings per share.