IG Group Holdings Plc (IGGHY, IGG.L), a global firm based in London that specializes in online derivatives trading, has announced that it is acquiring privately held tastytrade, Inc., an online brokerage firm and producer of financial programming based in Chicago. The deal is scheduled to be completed by the summer of 2021 and is valued at approximately $1 billion, consisting of $300 million in cash and 61 million IG Group shares worth roughly $700 million.

"We see a secular shift in the market for self-directed investing and trading," according to IG Chief Executive Officer June Felix. "Individuals will be taking more control of their financial outcomes and financial wealth, and this fits perfectly into that," she said, adding, "Derivatives is the next step."

  • IG Group, a global firm specializing in online derivatives trading, is buying tastytrade, a producer of financial programming.
  • Tastytrade also has about 150,000 online brokerage accounts.
  • The reaction to date among analysts and investors is that the purchase price of $1 billion is too high, sending IG Group shares tumbling.

What IG Group Does

Headquartered in London, IG Group operates in 17 countries across Europe, Africa, Asia-Pacific, the Middle East, and North America. It was founded in 1974, claiming to be the first spread betting firm in the world.

IG Group adds: "Our original offering—still core to our business—is leveraged trading: contracts for difference (CFDs) and spread betting (in the UK and Ireland), which generates the majority of our revenue. This is now complemented by a growing suite of non-leveraged share dealing and wealth-management products, suiting a broad range of risk appetites and trading and investment objectives throughout a client's lifetime, as well as IG's exchange traded derivative offerings, Nadex and Spectrum."

What tastytrade Does

Tastytrade indicates that it "was founded in 2011 and currently produces eight hours of live, original programming each weekday to provide financial information, investment strategies, and entertainment related to options trading and the stock market. Tastytrade gives you actionable information rooted in research and experience that can help you grow your investments."

Tastytrade programming is distributed through www.tastytrade.com, the tastyworks trading platform, iTunes, Apple TV, Apple Radio, Roku, Amazon Fire TV, and YouTube. The tastyworks brokerage firm was launched in 2017.

Rationale for the Deal

In discussing the rationale for the deal, IG Group CEO June Felix had this to say: "It's not the Robinhood segment—that's going after anyone that can sign on, anybody that is interested but not necessarily informed. This is going after, educating, and also serving the more active and informed, wealthier, older group of traders."

According to June Felix, the average age of options traders is about 50. She also noted that trading in derivatives allows clients to manage risk in a "more holistic way." Meanwhile, online stock trading has been surging in the past year, attributed to a combination of rising market volatility and increased numbers of people working from home amid the COVID-19 pandemic.

Analyst and Market Reaction

The deal would add more than 150,000 active tastytrade accounts to IG Group's platform, but the initial reaction among analysts and investors is that IG Group is overpaying. As of the close in trading in London on Monday, Jan. 25, 2021, shares of IG Group were down by 14.1% compared to their intraday high on Thursday, Jan. 21, 2021, the day that the deal was announced.