Trading Giant Virtu Financial Acquires KCG Holding for $1.4B Cash

Virtu Financial
Super deal and all cash too. Virtu Financial which operates a U.S. electronic trading business has agreed to acquire KCG Holdings for $1.4 BILLION……ALL CASH! Virtu brought in a couple of investors to help complete the financing including Canada’s Public Sector Pension Investment Board (PSP Investments) and Singapore’s GIC. Both company’s boards have already approved the deal which will close in the 3rd quarter. Congrats.

(Bill Taylor, CEO)

Virtu Financial, Inc. Agrees to Acquire KCG Holdings, Inc. to Create a Premier Market Maker and Agency Execution Firm

Leverages Virtu’s global scale, efficiency and market structure expertise with KCG’s strong client franchises in market making and independent agency execution

Over 25% accretion to Virtu earnings per share with fully-phased cost savings and capital synergies

NEW YORK, April 20, 2017 (GLOBE NEWSWIRE) — Virtu Financial, Inc. (NASDAQ:VIRT) today announced that it has entered into a definitive agreement to acquire KCG Holdings, Inc. (NYSE:KCG), which has been unanimously approved by the Board of Directors of each company. Virtu has agreed to acquire KCG in a cash transaction valued at $20.00 per KCG share, or a total of approximately $1.4 billion.

The transaction will extend Virtu’s scaled operating model to KCG’s wholesale market making businesses and broaden the distribution of Virtu’s technology and execution services to KCG’s extensive institutional client base. Virtu expects to migrate trading of the combined company onto a single, proven technology, risk management, and analytics platform.

“KCG fits perfectly with Virtu’s strategic priorities to apply our market making and technological expertise to customer wholesale order flow and expand Virtu’s growing agency execution business by offering clients a combination of Virtu and KCG’s superior algorithms and proprietary analytical tools. In addition, there is immediate opportunity for revenue growth and significant cost savings,” said Douglas A. Cifu, Virtu’s Chief Executive Officer.

Mr. Cifu continued, “Virtu and KCG both have a heritage of using technology to make markets more efficient. The combination of talented, dedicated professionals from KCG and Virtu will allow us to achieve more together than either firm could achieve alone.”

The transaction is expected to close during the 3rd quarter in 2017 after receipt of KCG shareholder approval and all required regulatory approvals.

Significant Value Creation through Synergies
The transaction is expected to provide significant further scale and financial benefits to Virtu. Within two years of the completion of the transaction, Virtu expects to realize approximately $208 million of net pre-tax expense savings, in addition to $440 million of capital synergies. These savings do not include any revenue enhancements that Virtu anticipates to result from the transaction.

Transaction Terms, Approvals and Timing
Virtu intends to fund the cash transaction and debt refinancing with new gross borrowings of $1.65 billion and the sale of $750 million of common stock, priced at $15.60 per share.

North Island, whose principals are Robert Greifeld and Glenn Hutchins, will invest $625 million in Virtu common stock, in partnership with GIC, Singapore’s sovereign wealth fund, and Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investment managers. Temasek, an existing Virtu shareholder, has committed to invest an additional $125 million in Virtu common stock. The sale of shares is conditioned upon the closing of the transaction.

Virtu has also entered into a commitment with J.P. Morgan Securities LLC, to provide up to $1.65 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 KCG, and receipt of required regulatory clearances and approvals. Jefferies LLC, the largest shareholder of KCG, has entered into a voting agreement pursuant to which it has committed to vote the 24.5% of KCG’s outstanding voting power it holds for the adoption of the merger agreement.

Organization and Leadership
Following the close of the transaction, Douglas A. Cifu, Virtu CEO, will remain CEO of the combined company. Joseph A. Molluso, Virtu CFO, will remain the CFO of the combined company.

Following the close of the transaction, the Board of Directors will consist of 10 directors, including 8 of the 10 members currently serving on the Virtu board. In addition, 2 new members from North Island, Robert Greifeld and Glenn Hutchins, will join Virtu’s Board of Directors. These changes will be effective immediately upon closing.

Virtu First Quarter 2017 Flash Results
Virtu plans to announce its full Q1 2017 results on May 4, 2017. The following tables present the selected financial information Virtu expects to announce:

(See results here.)

J.P. Morgan Securities LLC is acting as lead financial advisor to Virtu, and has committed to provide debt financing for the acquisition. Sandler O’Neill + Partners is acting as financial advisor to Virtu with Paul, Weiss, Rifkind, Wharton & Garrison LLP serving as Virtu’s legal counsel. Goldman, Sachs & Co. is financial advisor for KCG Holdings with Sullivan & Cromwell LLP serving as its legal counsel. Centerview Partners LLC is serving as exclusive financial advisor to North Island. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to North Island, Sidley Austin LLP is acting as legal advisor to GIC, and Weil, Gotshal & Manges LLP is acting as legal advisor to PSP Investments. Ernst & Young provided transaction due diligence services to North Island, GIC and PSP Investments. Shearman & Sterling LLP is serving as Temasek’s legal counsel.