Banking & Finance

The M&A Daily: Why Specialty Platforms Matter To Brokerage Firms (SCHW, OXPS, AMTD, ETFC, CBOE, NDAQ, NYX, MKTX, IBKR, TRAD)

It is 12:00 Noon and that means it is time for The M&A Daily.  While news came out on Monday that Charles Schwab Corporation (NASDAQ: SCHW) was acquiring optionsXpress Holdings, Inc. (NASDAQ: OXPS), this merger highlights the value of deals that could come in the options and derivatives space.

OptionsExpress was not acquired for a huge premium despite the $1 billion price tag. In a 1.02 share swap, the value was $17.91 before the effects of price changes in the shares.  With Schwab shares at $17.76 this morning, the implied value would be closer to $18.10 for OptionsExpress.  A month ago it was said that OptionsExpress had 385,200 customer accounts and about $8.1 billion in total client assets either in positions or on deposit.

The deal is long after the TD AMERITRADE Holding Corp. (NASDAQ: AMTD) acquisition of ThinkorSwim for some $606 million.  This was one of those deals that sort of got the value track going again in options, but we can’t omit the deal where Citadel tied up so much of the options business of E*TRADE Financial Corporation (NASDAQ: ETFC).

Perhaps even more important is that the recent IPO from CBOE Holdings, Inc. (NASDAQ: CBOE) leaves the exchange stock as perhaps “The Last Man Standing” if the NYSE Euronext, Inc. (NYSE: NYX) merges with either Deutsche Boerse or if NASDAQ OMX Group (NASDAQ: NDAQ) makes that rumored rival bid.  It is still unsure whether or no the U.S. regulators will even allow the NYSE to be mostly foreign-owned or not.

The deal from Schwab for OptionsXpress makes sense.  While it sounds expensive at almost $2,600.00 per account, the true die-hard options traders tend to be more active traders and tend to have more assets at other firms.  This may allow for much cross-selling opportunities for Schwab to gather up more accounts from more active and advanced traders.

Schwab has seen a 52-week trading range of $12.64 to $19.95 and OptionsXpress has seen a 52-week range of $13.86 to $21.07.  So far, the April and May options expirations in the $17.50 strike prices are not indicating that a higher premium buyout is coming either from Schwab or from another buyer.

We are not going to look at the currency-brokers because they often have many accounts funded with very small dollar amounts.  Some other firms which are specialty brokerage firms are as follows:

MarketAxess Holdings Inc. (NASDAQ: MKTX) is a firm specializing in electronic trading of corporate bonds and other fixed-income assets and its market cap is $845 million with a $22.44 price and a 52-week range of $12.27 to $22.49.

Interactive Brokers Group, Inc (NASDAQ: IBKR) allows its clients to trade multiple securities classes and it seems to have a broader cross-border scope than many of its peers. At $15.99, it has a market cap of $675 million and a 52-week trading range of $15.23 to $19.49.

TradeStation Group Inc. (NASDAQ: TRAD) caters to more of the professional and active trading crowd and caters to stock, options, futures and more.  With shares at $7.08, its market cap is $277 million and its 52-week trading range is $5.22 to $8.46.

There is value in the higher volume and higher trading activity accounts again.  At least so it seems.  There may be more consolidation ahead in the specialty online brokerage firms.

JON C. OGG