IG Group's $195.9M Acquisition of Freetrade: A Strategic Move

IG Group Holdings plc (LSE:IGG) has announced the acquisition of Freetrade, a commission-free, self-directed investment platform, for £160 million ($195.9 million). This strategic move is expected to strengthen IG's UK trading and investments offering and broaden its target addressable market. The deal is subject to customary regulatory approvals and is expected to close by mid-2025.

Freetrade, launched in 2018, has become one of the most successful emerging players in the UK market, with 720k customers and an Assets Under Administration (AUA) of £2.5 billion as of the end of 2024. The platform offers a wide range of products, including over 6,200 global stocks and ETFs, fractional shares, UK Treasury bills, ISAs, SIPPs, securities lending, and proxy voting. Freetrade's user-friendly platform and transparent pricing have driven strong client acquisition, retention, and AUA growth.

IG Group believes that Freetrade's acquisition will provide several strategic benefits, including:

1. Broadened Target Addressable Market: Freetrade's strong brand and rapid growth in the UK direct-to-customer investment market allow IG to access new customer segments and capabilities.
2. Highly Scalable Technology: Freetrade's proprietary, highly scalable technology can be leveraged by IG to enhance its own platform and offerings.
3. Optionality on New Product and Market Entry: The acquisition provides IG with the opportunity to explore new product offerings and market entries, as Freetrade has demonstrated an ability to acquire customers at low cost.
4. Strengthened UK Trading and Investments Offering: By acquiring Freetrade, IG strengthens its position in the UK trading and investments landscape, complementing its existing offerings.

Freetrade's low-cost customer acquisition strategy aligns with IG Group's growth plans. Freetrade has demonstrated an ability to efficiently invest in marketing, leading to a significant increase in AUA. The platform's growing customer base and high net flow rates indicate its effectiveness in attracting and retaining customers. Additionally, Freetrade's well-diversified revenue streams, split across subscriptions, foreign exchange transaction fees, and interest income, contribute to its positive EBITDA and overall growth.

IG Group expects the acquisition to achieve a return on invested capital in excess of its weighted average cost of capital in years three to five. The acquisition is expected to be funded in cash from existing capital resources, with surplus capital not allocated to other priorities being returned to shareholders. IG Group also plans to extend its £150 million share buyback program in the second half of the current fiscal year, subject to regulatory approval.

In conclusion, IG Group's acquisition of Freetrade is a strategic move that strengthens its UK trading and investments offering and broadens its target addressable market. Freetrade's low-cost customer acquisition strategy, highly scalable technology, and strong brand align with IG Group's growth plans, making this acquisition an attractive opportunity for both parties.