E*TRADE Financial Corporation (NASDAQ:ETFC) has made waves with its latest acquisition, entering into an agreement to assimilate Aperture New Holdings, Inc., the parent company of OptionsHouse, an online brokerage for Equities and options trading, for a sum of $725 million.
OptionsHouse was an attractive target for E*TRADE as it boasts 154,000 customer accounts with a total of $3.6 billion in customer assets, including $1.4 billion in cash. The group merged with tradeMONSTER in 2014 and has been responsible for executing 27,000 Daily Average Revenue Trades (DARTs) over the past year, the majority of which being options – furthermore, revenues have eclipsed the $100 million mark, reporting $104 million over the previous twelve months.
The new acquisition is noteworthy as it will help E*TRADE's derivatives capabilities, which will look to expand its customer profile via OptionsHouse's trading composition. In addition, the deal will give E*TRADE’s clients a number of different capabilities, including the absorption of all OptionsHouse’s offerings. By extension, OptionsHouse’s clients are grandfathered into E*TRADE’s existing suite of services.
Acquisition Specifics
E*TRADE opted to fund the acquisition via a mostly cash settlement of $725 million. This includes a transaction through the issuance of up to $400 million of non-cumulative perpetual preferred stock, with the balance paid in cash. The deal is expected to formally close later this year, pending the requisite regulatory approvals.
According to Paul Idzik, CEO of E*TRADE Financial, in a recent statement on the deal: "This is the first acquisition E*TRADE has made in a great while, underscoring our disciplined approach, and commitment to deliver on our growth plans.”
“We believe options are an important component of an investor's arsenal, and this deal will intensify our derivatives firepower. Further, we could not be more excited to show OptionsHouse customers all we have to offer, including deep research and education, long-term investing tools, and a best-in-class mobile experience."
"From a capital utilization perspective, this transaction is incredibly attractive. Beyond creating compelling long-term returns through expansion and synergies, the introduction of preferred equity optimizes our capital structure and enhances 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,” explained Mike Pizzi, Chief Financial Officer (CFO) of E*TRADE in an accompanying statement.
At the time of writing, E*TRADE (NASDAQ:EFTC) is trading down -3.02% on the news, settling at $25.03.
