Online retail brokerage, E*Trade Financial, is set to bolster its derivatives trading capabilities through the US$725m acquisition of OptionsHouse, an online broker specialising in highly active options trading clients.
The acquisition will see E*Trade take control of Aperture New Holdings, the ultimate parent of OptionsHouse, in a deal financed through the issuance of up to US$400m in non-cumulative perpetual preferred stock with the remainder paid in cash.
“We believe options are an important component of an investor’s arsenal, and this deal will intensify our derivatives fire-power,” said Paul Idzik CEO of E*Trade Financial in a statement.
OptionsHouse, which is headquartered in Chicago, merged with TradeMonster in 2013 and has over 150,000 customer accounts with US$3.6bn in customer assets. Revenues for the last 12 months totalled US$104m, with almost two-thirds stemming from options activity.
The transaction, which is scheduled to close in the fourth quarter of 2016 pending regulatory approvals, is expected to be accretive to earnings in 2018, when full synergies are achieved totalling US$65m per year, according to E*Trade.
“From a capital utilisation perspective, this transaction is incredibly attractive,” said Mike Pizzi, CFO of E*Trade.
He said that the issuance of preferred equity optimises the capital structure and further enhances the firm’s financial flexibility.
“Importantly, it supports our consolidated Tier 1 leverage ratio to remain above target, while creating flexibility to continue marching forward on other capital actions, including share repurchases and balance sheet growth,” said Pizzi.
