In a combination of two major electronic trading and market-making firms, Virtu Financial is acquiring rival KCG Holding for $1.4 billion.
Both companies use sophisticated technology and algorithms for high-frequency trading of stocks and other assets and, according to Reuters, are responsible for around half of the volume in U.S. equities and Treasuries.
“The deal comes at a difficult time for high-frequency trading as low volatility squeezes the profits it can make from rapid-fire trades,” Reuters noted.
Virtu said Thursday it would pay $20 a share for KCG, a 12.7% premium to the stock’s close on Wednesday. In trading Thursday, the stock rose 11.3% to $19.75.
“KCG fits perfectly with Virtu’s strategic priorities to apply our market making and technological expertise to customer wholesale order flow and expand Virtu’s growing agency execution business by offering clients a combination of Virtu and KCG’s superior algorithms and proprietary analytical tools,” Virtu CEO Douglas A. Cifu said in a news release.
“In addition, there is immediate opportunity for revenue growth and significant cost savings,” he added.
Within two years of the completion of the transaction, Virtu expects to realize approximately $208 million of net pre‐tax expense savings, in addition to $440 million of capital synergies. The firm currently makes markets in 36 countries and 12,000 financial instruments.
Business Insider said the deal could “put employees at the two companies on edge,” noting that $180 million of the cost savings would come in the area of “occupancy, overhead and redundancies.”
KCG was formed in December 2012 from the merger of New Jersey-based Knight Capital Group and Chicago-based Getco, two pioneers of using computer technology for high-speed trading. According to The Financial Times, it is “one of the largest players in wholesale trading where companies execute trades for retail houses such as Charles Schwab and TD Ameritrade.”
Virtu now employs 148 people while KCG employs 952.