08 Apr 2008, Alexander Campbell, Risk magazine
Icap will pay £135 million initially for the broker, plus up to £30 million for its assets over and above regulatory capital requirements, and an earnout based on after-tax profits in 2010. The total payment is capped at £250 million.
The takeover will be debt-financed, according to Icap - it has agreed a £150 million term loan and also recently signed a three-year £520 million senior revolver deal.
The move will strengthen Icap within the fragmented equity derivatives market, where Link is a strong performer - in last year's Risk interdealer broker rankings it came third, behind Sunrise and GFI but ahead of Icap, which came fifth.
Icap plans to combine Link, including its chairman John Booth and chief executive Charles Davies, with its existing non-US equity derivatives business. Icap chief executive Michael Spencer commented: "Equity derivatives are one of the 'focus' areas for our voice business that 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."
Notional outstanding volumes of equity derivatives have grown sharply, according to the International Swaps and Derivatives Association. In June 2007, the most recent month for which figures are available, the total was $9.2 trillion, up from $7.5 trillion in December 2006 and $4.6 trillion in June 2005.