Icap to acquire equity derivatives broker Link

‘We are very pleased to have reached agreement to acquire Link,’ says Icap group chief executive Michael Spencer. ‘The company enjoys a very strong market position as a 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 more than 500 customers.

‘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 five to seven 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.’

Link chief executive Charlie Davies says: ‘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 acquire 100 per cent 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 GBP135m plus the amount, up to GBP30m, by which Link’s net assets exceed its regulatory capital requirement.

Icap also will pay deferred consideration equal to 25 per cent of nine times the profit after tax of the Link group for the year ending March 31, 2010 after it has been amalgamated with certain complementary Icap businesses. The aggregate of the initial consideration and the deferred consideration is capped at GBP250m.

In 2007, Link posted revenue of GBP81m (up 68 per cent from 2006) and pre-tax profit of GBP22m. Following the acquisition, it is expected that all the firm’s senior management and staff including its co-founders, Davies and chairman John Booth, will remain with the business within the Icap Group.

Icap is a voice and electronic interdealer broker and a source of global market information and commentary for professionals in the international financial markets. The group is active in the wholesale markets in interest rates, credit, energy, foreign exchange and equity derivatives, and has an average daily transaction volume exceeding USD1.5trn, more than 60 percent of which is electronic.

Link began its business in 1997 in European equity derivatives, establishing offices in New York in 2003 and Hong Kong in 2005. As a member of Europe’s main derivatives exchanges Liffe, Eurex and Euronext, Link operates as an agency or matched principal broker, enabling banks and other market counterparties to trade anonymously.

The firm also has cash equity execution businesses in New York and London allowing clients to trade shares on US and European exchanges through Link’s exchange memberships, a third-party direct market access solution or, in certain markets, relationships with local brokers. The cash business is supplemented by a cross-book team allowing clients to trade ADRs.