TIDMTCAP
RNS Number : 5003A
TP ICAP PLC
29 September 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
29 September 2020
TP ICAP PLC
Discussions regarding the proposed acquisition of Liquidnet
TP ICAP plc ("TP ICAP" or the "Company" and, together with its
subsidiaries, the "Group") announces that it is in advanced
discussions relating to the proposed acquisition of the entire
issued share capital of Liquidnet Holdings, Inc. ("Liquidnet" and,
together with its subsidiaries and the Group, the "Enlarged Group")
for a total consideration of between US$600m and US$700m comprising
approximately US$550m upfront, deferred non-contingent
consideration of US$50m and an earn-out of up to US$100m (the
"Potential Acquisition").
Liquidnet is a premier brand, technology-driven, global
electronic trading network:
-- A trusted specialist in Equities dark trading, with a growing
Fixed Income presence and an advanced data science capability
within its Investment Analytics division;
-- Liquidnet's equity offering includes a leading agency-only
block trading platform that provides institutional investors with a
broad range of innovative execution solutions, algorithmic and
quantitative models, liquidity-sourcing techniques in both dark and
lit markets and advanced analytics to help maximise
performance;
-- Anchored by one of the world's largest pools of buyside
liquidity, Liquidnet operates across 45 markets worldwide via a
network of more than 1,000 asset management and hedge fund
clients(1) , who collectively manage US$33trn in equity and fixed
income assets(2) ;
-- Built over a 20-year period, Liquidnet's electronic trading
network is well embedded into institutional workflows, including
its signature institutional desktop trading applications and via
integrations with major order/execution management systems.
Strategic rationale
The Board of TP ICAP (the "Board") believes the strategic
rationale for the Potential Acquisition is built upon:
1) Global integrated buyside customer base and connectivity:
Liquidnet has been a trusted partner to buyside clients for two
decades, building up comprehensive workflow connectivity to a
network of more than 1,000 buyside institutions(1) . Liquidnet has
already proven its ability to leverage its network and
relationships to enter new market segments. Since 2015, when
Liquidnet launched its Fixed Income offering, it has built a
network of more than 500 active asset management clients(1) . TP
ICAP believes there is clear potential to build further,
complementing Liquidnet's strengths and shared unconflicted
agency-only model with its own product expertise, dealer
relationships, and connectivity;
2) Addressable growth opportunities, arising from the combined
strengths of Liquidnet and TP ICAP:
o Dealer-to-client ("D2C") Credit trading: The market structure
for trading Credit products has evolved significantly in recent
years, in response to changes in regulation and other market
trends. In particular, D2C electronic Credit trading has been
growing rapidly. Liquidnet has already built an impressive global
network of more than 500 buyside institutions(1) , with execution
protocols focussed mainly on large-size client-to-client trading of
corporate bonds. TP ICAP expects to use its Credit market
expertise, its established relationships with the global dealer
community, and Liquidnet's existing capabilities, to expand the
Liquidnet offering to include a range of D2C tools and protocols.
In a growing market segment, TP ICAP expects the Enlarged Group to
present a highly attractive offering to market participants;
o D2C Rates trading: In the Rates market, over-the-counter
("OTC") trading represents an increasing share of interest rate
derivative trading, and the rate of electronification in the D2C
segment is growing particularly rapidly. TP ICAP believes it can
create a powerful competitor in the growing D2C electronic trading
arena;
o Data & Analytics product and customer opportunities : TP
ICAP already offers market participants one of the largest and
richest OTC datasets available globally. Liquidnet's Investment
Analytics team and artificial intelligence and machine-learning
tools are expected to complement and enhance TP ICAP's product
development and service capabilities. TP ICAP's global sales team
expects to present useful tools and products (such as the recently
launched Bond Evaluated Pricing service) to the Liquidnet client
base, accelerating penetration of the buyside market for data and
analytics.
The Potential Acquisition would be expected to transform TP
ICAP's revenue growth profile, with almost half of the Enlarged
Group's revenue coming from higher-growth businesses and the
Enlarged Group's revenue growth profile expected to increase from
low single digit to mid-single digit over the medium-term.
Liquidnet would also be expected to contribute to a c.300bps
improvement in underlying operating margin, leading the Enlarged
Group to a 20%+ operating margin over the medium-term. In order to
achieve this margin improvement, TP ICAP expects a c.GBP25-30m
incremental investment spend on Liquidnet in the 12-24 months post
completion of the Potential Acquisition ("Completion"). Further,
based on TP ICAP's closing share price on the day prior to this
announcement(3) , the Potential Acquisition is expected to be
broadly earnings neutral in Year 2, and meaningfully accretive in
Year 3.
In the 12 months to 30 June 2020(4) , Liquidnet generated US$64m
(GBP50m) of adjusted EBITDA(5) on US$339m (GBP264m) of revenue.
Financing the Potential Acquisition
TP ICAP intends to fund the Potential Acquisition as
follows:
i. US$100m in cash to be paid on Completion, to be funded using
TP ICAP's existing debt facilities;
ii. Approximately US$450m in cash, to be funded by way of:
a. An initial 19.9% cashbox placing(6) on announcement of the
entry into the Potential Acquisition, to be paid to Liquidnet
stockholders on Completion; and
b. A further non-pre-emptive placing closer to or shortly after
Completion, but with the amount payable as consideration to be
adjusted for the performance of TP ICAP's shares between
announcement and Completion, to be paid shortly after
Completion;
iii. US$50m of senior unsecured loan notes issued on Completion
to certain stockholders in Liquidnet, repayable in cash on the
third anniversary of Completion; and
iv. An earn-out of up to a maximum of US$100m in cash, linked to
the cumulative revenues generated solely by Liquidnet's Equities
business in the three years ending 31 December 2023.
Conditions to Completion
The Potential Acquisition would be conditional upon, inter alia,
the approval of TP ICAP shareholders, completion of the previously
announced Redomiciliation (as defined below) and regulatory
clearances, as well as other customary conditions.
There can be no certainty that discussions between the Company
and Liquidnet will lead to any agreement nor can there be any
certainty as to the timing or terms of any transaction regarding
the Potential Acquisition. The terms of any transaction remain
subject to approval by the Board and the Board will only proceed
with a transaction in circumstances and on such terms it believes
align with TP ICAP's strategy and are determined by the Board to be
in the best interests of TP ICAP and its shareholders.
Dividends
The Board declared an interim dividend of 5.6 pence per share to
be paid on 6 November 2020 and, if the Potential Acquisition is
approved by shareholders, the Board intends to pay 50% of the
GBP94m dividend currently anticipated in respect of the year ending
31 December 2020. From the year ending 31 December 2021 onwards, TP
ICAP intends to target a dividend cover of approximately 2x
underlying earnings over the medium-term.
Current trading
As stated in the Group's interim results announcement, July
trading activity had slowed down and was materially lower than 2019
levels, in line with activity levels in the wider market.
Whilst September trading activity has started to normalise, in
order to deliver the Group's previously stated guidance of
low-single digit revenue growth in 2020 the Group remains reliant
on higher market volatility and trading activity in the fourth
quarter, which the Group expects will be driven in part by the US
elections.
Update on redomiciliation
On 23 December 2019, TP ICAP announced its intention to
reorganise the Group's international corporate structure by the
introduction of a new holding company in Jersey by means of a
Court-approved scheme of arrangement (the "Redomiciliation"). A
separate circular and prospectus in connection with the
Redomiciliation are expected to be published later this year. The
Redomiciliation is expected to complete in Q1 2021.
Notes
(1) As of Q2 2020
(2) As of 30 September 2018, excluding APAC
(3) TP ICAP closing share price of 278p, 28 September 2020
(4) US GAAP accounting standard. GBP:USD FX rate 1:1.284, 28
September 2020
(5) Adjusted EBITDA (non-GAAP metric) excludes equity based
compensation and other non-recurring fees totalling $17m
(6) Principal shareholders have been consulted in advance of
this announcement and the placing is expected to be made on a soft
pre-emptive basis
Enquiries
For further information, please contact:
TP ICAP plc
Al Alevizakos (Head of Investor
Relations) +44 (0) 799 991 2672
Richard Newman (Head of Marketing
&
Communications) +44 (0) 746 903 9307
William Baldwin-Charles (Director
of Media
Relations) +44 (0) 783 452 4833
Maitland/AMO (Financial PR)
Neil Bennett / Andy Donald +44 (0) 207 379 5151
The person responsible for arranging and authorising the release
of this announcement is Richard Cordeschi, Group Company Secretary
of TP ICAP.
Summary information on TP ICAP
TP ICAP brings together buyers and sellers in global financial,
energy and commodities markets. It is one of the world's largest
wholesale market intermediaries, with a portfolio of businesses
that provide broking services, data & analytics and market
intelligence, trusted by clients around the world. It operates from
offices in 26 countries, supporting award-winning brokers with
market-leading technology.
www.tpicap.com
Appendix I - Additional financial information on Liquidnet
$m 2018 2019 LTM Jun-20
============================== ===== ===== ==========
Operating Revenues 341.5 302.2 339.2
============================== ===== ===== ==========
Reported EBITDA 82.2 31.0 46.9
(+) Equity-based Compensation 7.7 8.3 14.6
(+) Dual Occupancy Expense 6.5 1.6 0.4
(+/-) Other (0.4) 2.1 2.1
------------------------------ ----- ----- ----------
Adjusted EBITDA 96.0 43.0 64.0
============================== ===== ===== ==========
Note: Financials based on US GAAP. This statement may be subject
to amendment by TP ICAP when based on TP ICAP financial statements
under IFRS and/or IFRS-consistent accounting policies adopted by TP
ICAP in its own internal Group statements.
Forward looking statements
This announcement may contain statements that are, or may be
deemed to be, forward-looking statements. Forward-looking
statements are statements that are not historical facts and may be
identified by words such as "believes", "expects", "anticipates",
"intends", "estimates", "will", "may", "could", "would",
"continues", "should" and similar expressions or, in each case,
their negative terms. Forward-looking statements include statements
regarding objectives, goals, strategies, outlook and growth
prospects; future plans, events or performance and potential for
future growth; liquidity, capital resources and capital
expenditures; economic outlook and industry trends; developments of
TP ICAP's or Liquidnet's markets; and the strength of TP ICAP's
and/or Liquidnet's competitors. These forward-looking statements
reflect, at the time made, TP ICAP's beliefs, intentions and
current expectations concerning, among other things, the benefits
or synergies resulting from the Proposed Acquisition, as well as TP
ICAP's and the Enlarged Group's results of operations, financial
condition, liquidity, prospects, growth, and strategies.
Although TP ICAP believes that these assumptions were reasonable
when made, the assumptions underlying these forward-looking
statements are inherently subject to significant known and unknown
risks, uncertainties, contingencies and other important factors
regarding TP ICAP's or the Enlarged Group's present and future
business strategies and the environment in which TP ICAP and/or the
Enlarged Group will operate in the future. No representation is
made that any of these forward-looking statements or forecasts will
come to pass or that any forecast result will be achieved. Undue
influence should not be placed on any forward-looking statement.
Potential investors should not rely on such forward-looking
statements in making their investment decisions. No representation
or warranty is made as to the achievement or reasonableness of, and
no reliance should be placed on, such forward-looking statements.
Forward-looking statements speak only as of the date they are made
and cannot be relied upon as a guide to future performance. Save as
required by law or regulation, TP ICAP disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements in this announcement that may occur due
to any change in its expectations or to reflect events or
circumstances after the date of this announcement. No statement in
this announcement is intended to be nor may be construed as a
profit forecast.
NOTHING IN THIS announcement CONSTITUTES AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO SELL ANY SECURITIES IN THE UNITED
STATES OR ANY OTHER JURISDICTION. NO SECURITIES HAVE BEEN OR WILL
BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH
ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE UNITED
STATES.
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END
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September 29, 2020 13:26 ET (17:26 GMT)
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