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IDB M&A Match: Tullet-ICAP vs. BGC-GFI

Much has been made about the Tullet-ICAP transaction for 1.1 billion pounds (subject to regulatory scrutiny/approval), and indeed it does represent both of the following:

  • A huge IDB (interdealer broker) consolidation, with Tullet getting ICAP’s ~1,500 voice brokers
  • A relatively easy transition from ICAP NewCo (to be renamed later) away from voice broking and toward pure-play electronic trading

There has even been speculation of LSE closing in on ICAP NewCo.

However, let’s not forget the BGC-GFI transaction and this morning’s announcement of ICE purchasing Trayport from BGC for US$650 million (which itself follows its 2013 sale of eSpeed to Nasdaq for US$1.2 billion). To put the BGC deal in perspective with Tullet’s:

  • Acquires GFI for US$750 million
    (away from CME)
  • Sells Trayport to ICE
  • Retains for US$100 million
    ~1,000 GFI voice brokers and
    FENICS FXO software and branding

Valuing FENICS at US$0 works out to just ~US$100,000/broker for BGC versus ~US$1.1 million/broker for Tullet. Given all the competitive poaching among the big five IDBs over the years, are ICAP brokers really 10x more valuable than GFI brokers? And of course, FENICS is currently worth far more than US$0 and will likely go up with the expected trajectory of the FX market! So just by the numbers these two deals are markedly different.

And then there were three …

 

Assuming the Tullet-ICAP deal closes, we’re left with just three IDBs:

BGC

  • Traditional voice → hybrid electronic IDB business
  • Really a portfolio of both capital markets IDB and real estate brokers
  • (Controlled by Cantor Fitzgerald, itself another broker-dealer)

Tradition

  • Traditional voice hybrid electronic IDB business
  • Smallest capital markets IDB broker (by about half the headcount)

Tullet

  • Doubling down on the traditional voice hybrid IDB business
  • Largest mass of capital markets IDB brokers

At the end of the day, BGC and Tullet will be the giants, Tradition the last man standing, ICAP NewCo a full life cycle electronic trading pure-play, and ICE diversified big-time with fixed income and OTC derivatives pricing via IDC, and OTC energy via Trayport.