TP ICAP Share Price Stumble on Proposed Acquisition of Liquidnet

Summary

  • TP ICAP Plc is in advanced discussions with Liquidnet Holdings Inc to buy the entire issued share capital of the company
  • The Potential Acquisition is expected to boost the revenue streams for the TP ICAP, primarily led by higher-growth businesses.
  • The combined synergies of the two can lead to potential growth opportunities for the company in future

Last year in December, TP ICAP Plc announced plans to introduce a new holding company in Jersey, whose domiciliation is expected to complete by the first quarter of 2021 subject to approval from the court as a part of the Group’s strategy to reorganise its international corporate structure.

TP ICAP PLC (LON: TCAP) had recently confirmed that it is in advanced discussions with Liquidnet Holdings Inc, which is a technology-driven, global electronic trading network. TP ICAP will buy the entire issued share capital of Liquidnet Holdings Inc. The company is supposed to make an upfront payment of US$550, and the total consideration is of US$600-700 million.

Liquidnet Holdings has been a trusted partner of TP ICAP for nearly two decades; has a comprehensive network of several buy-side institutions. TP ICAP can enter new market segments by leveraging upon the existing network of the Liquidnet Holdings Inc.

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What synergies Liquidnet and TP ICAP can bring?

The combined synergies of Liquidnet and TP ICAP can lead to potential growth opportunities. Dealer-to-client (D2C) electronic Credit trading segment has been growing at a decent pace. The combination of D2C electronic Credit trading along with a network of several buyside institutions can allow TP ICAP to penetrate deeper into the market with the help of its D2C tools and protocols.

Moreover, TP ICAP aims to revolutionise the over-the-counter trading in the Rates market by electronification in the D2C segment and thereby to taking the competition a notch higher.

TP ICAP can also look to improve its existing product offerings and service capabilities by deploying the Liquidnet’s Investment Analytics team and using machine-learning tools along with artificial intelligence to leap forward and stay ahead of the competition.

TP ICAP would look to build upon Liquidnet Holdings strengths

The Potential Acquisition is expected to boost the revenue streams for the TP ICAP, primarily led by higher-growth businesses. TP ICAP is expected to use its existing debt facilities, plus approximately US$450 million in cash to fund the potential acquisition, which is subject to approval from the TP ICAP shareholders as well as other regulatory clearances.

In July 2020, the trading activity of the company witnessed a dip in the performance and was substantially lower than the preceding year (2019). In the fiscal year 2020, the company’s revenue is expected to record single-digit growth. The Company is expected to continue monitoring the impact of the coronavirus pandemic on the customers throughout the remaining part of the year. Moreover, the Group’s strives to invest approximately £15 million of cash in 2020. The Group has adhered to a prudent approach due to the prevailing uncertainties in the trading environment.

Structural changes in the regulatory framework might have a significant impact on the business model of the company. The Company is prone to foreign exchange rates fluctuations. Moreover, the Covid-19 mayhem and macroeconomic uncertainties will lead to volatility in the markets in the near term.

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First-half financial performance of TP ICAP plc

In the first half of 2020, the Group’s revenue increased by 7 per cent year-on-year to £990 million (H1 FY19: £922 million) on a reported basis, while it increased by 6 per cent on a constant currency basis against the same period last year. Revenues were boosted by a strong month in March 2020. Statutory operating profit in the first half of 2020 was down by 6 per cent year-on-year to £101 million, with an operating profit margin of 10.2 per cent (H1 FY19: 11.6 per cent) and statutory profit before tax of £78 million (which was £5 million lower in H1 2019).

The decline in statutory profit was primarily driven by higher business reorganisation expense and the £10 million impact (due to a surge in unused annual leave as of 30 June 2020). The underlying operating profit was up by 1 per cent year-on-year to £159 million on a reported basis. The Company has declared an interim dividend per share of 5.6 pence for the first half of 2020.

Formerly known as Tullett Prebon Plc, TP ICAP Plc (LON: TCAP) is a United Kingdom based inter-dealer brokerage company which acts as a mediator in the over-the-counter (OTC) financial and exchange-traded instruments and also in the secondary markets. The Company also provides commercial and investment banking businesses in the realm of trading related activities.

(Source: Thomson Reuters)

Since the announcement, the shares of TP ICAP have plunged by nearly 20 per cent in value. TP ICAP shares were trading at GBX 222.40 (GMT 4:21 PM +1) on 1 October 2020, down by 2.54 per cent in contrast to previous day closing price. Market capitalisation of the company was recorded at £1,285.53 million at the time of writing.

Data analytics and artificial intelligence can transform financial & brokerage services in the future. The combined synergies could drive growth for the company as well as open room for the next leg of growth in the sector.

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