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Virtu finalizes purchase of rival KCG

First Published 20th April 2017

High frequency trading firm Virtu Financial has agreed to buy competitor KCG Holdings for 1.4 billion USD.

At a price of 20 USD per share, the deal is at a premium of 12.7% over the closing price on Wednesday, when the deal was announced. It is also at the top of the range (18.50 to 20 USD) proposed by Virtu when the company made an unsolicited bid on 15 March 2017.

The deal is all cash and will be funded through a mix of debt and equity. JP Morgan will provide debt financing of 1.65 billion USD while 750 million USD of equity financing is provided by a consortium consisting of the Canadian Public Sector Pension Investment Board, GIC and Temasek (Singaporean sovereign wealth funds) and North Island, a private equity firm.

For Virtu, the acquisition is expected to boost earnings by as much as 25% as it will provide additional sources of order flow for market making and will offer economies of scale and scope in infrastructure spending.

The combined entity will trade around 20% of the ADV in US cash equities. However, the deal is unlikely to fail on regulatory grounds given the competitive nature of market making. It is expected to close in the third quarter.