Niche Trading Firm Mergers Not Dead (AMTD, SWIM, OXPS, TRAD)

It seems that the appetite for online brokerage firms to do selective M&A deals is not entirely dead.  TD Ameritrade (NASDAQ: AMTD) has announced this morning that it is acquiring much smaller thinkorswim Group Inc. (NASDAQ: SWIM).  It is paying a hefty premium of $606 million for the company, but you also have to consider what the larger firm is getting for the acquisition.

The acquisition price may fluctuate as this is technically a cash andstock deal, but the $3.34 in cash and 0.398 shares of AMTD per SWIMshare gives an implied value of about $8.70 based upon the AMTD closeof $13.48.  Ameritrade shares are down on the report so that $8.70implied price will be adjusted lower.

This will give Ameritrade a larger retail options presence.  Ameritradeis targeting a 3% to 7% profit boost next year as a result of the dealwith a target of an additional 10% or more growth to annual earnings. If you look as of the end of September, thinkorswim had $380 million in trailing 12-month revenues and $87 million in pre-tax income that it generated from roughly 87,000 ‘funded’ retail brokerage accounts and more than $3 billion in client assets.

If you are looking for other niche plays that other brokerage firmsmight want to consider in sympathy, there are two firmswhich come to mind.  Those companies are optionsXpress Holdings, Inc.(NASDAQ: OXPS) and TradeStation Group Inc. (NASDAQ: TRAD).  Just keepin mind that the ability for these deals to come about did not evencome during good times, and brokerage firms are doing far more thanjust pinching their pennies today.

thinkorswim shares are trading up roughly 40% to $7.94 on the deal.

Jon C. Ogg
January 8, 2009