Electronic trading major IG Group Holdings plc (LON:IGG) today announced the acquisition of neobroker Freetrade, a self-directed investment platform, for £160 million (USD $195 million).
IG and Freetrade management statement
Breon Corcoran, CEO of IG commented:
“This is a rare opportunity to strengthen IG’s UK trading and investments offering and broaden our target addressable market. Freetrade is one of the most successful emerging players in the UK direct-to-customer investment market, with a strong brand, highly scalable technology and delivering rapid growth. I am delighted that Viktor and his team will join IG and continue to lead Freetrade.”
Viktor Nebehaj, CEO and co-founder of Freetrade said:
“This is an exciting opportunity to accelerate our growth and delivery of new products and features on our award-winning platform. IG’s vision for Freetrade is closely aligned with our own and its backing will be of huge benefit as we continue to scale the business.”
Freetrade results
Freetrade has emerged as a leader in the UK neobroker market, but at a hefty cost, racking up nearly £100 million in accumulated losses, including a £13.9 million loss at Freetrade in 2023 on Revenues of £21.6 million. The company seemed to have somewhat turned the corner in 2024, reporting Revenues of £27.5 million, including £8.3 million in Q4 2024.
From a valuation perspective, IG is paying about 5x Freetrade’s annual run rate Revenues for the company (based on Q4 Revenues).
Freetrade also said that it saw “Unaudited adjusted EBITDA” of £2.1 million in 2024, versus a 2023 EBITDA loss of £8.6 million.
However since its launch in 2018, Freetrade has become one of the most successful emerging players in the UK market with 720k customers and AUA of £2.5 billion as of the end of 2024, both very valuable commodities to IG.
Freetrade has also seen strong growth momentum, with net flows in 2024 equivalent to 22% of starting AUA. With efficient investment in marketing, AUA has risen from £1.2 billion at the end of 2022. Customers with AUA of £10k or more are a fast-growing segment, increasing from 27k to 41k as at 31 December 2024.
Robinhood of Europe
At one point Freetrade had designs on becoming the “Robinhood of Europe”, alongside a few other neobroker startups such as Netherlands based BUX and Switzerland’s FlowBank. However larger-than-expected losses (as noted above) and an ultra competitive environment kept Freetrade mainly UK focused – it recently picked up the UK clients of Australia based Stake – while BUX was scooped up by one of its financial backers, ABN Amro, and FlowBank was put into bankruptcy by Swiss regulator FINMA.
Freetrade after the acquisition
IG said it will operate Freetrade as a commercially standalone business with its own brand, existing management team and operational platform to support the successful execution of the strategy. Viktor Nebehaj, CEO and co-founder, and the leadership team, will remain with Freetrade and continue to scale the business.
Deal details
IG will acquire 100% of Freetrade for an enterprise value of £160 million which will be funded in cash from existing capital resources.
Completion is subject to customary conditions including regulatory approvals and currently expected in mid-2025.
The acquisition is expected to achieve a return on invested capital in excess of the Group’s weighted average cost of capital in years three to five.
As at 31 May 2024, IG reported surplus regulatory capital of £638 million and headroom is expected to remain strong following completion of the acquisition. In line with IG’s capital allocation framework, surplus capital not required for other priorities will be returned to shareholders.
IG also said that it expects to extend the existing share buyback programme of £150 million announced on 25 July 2024 in the second half of the current financial year, subject to regulatory approval.
