Private equity firm Advent International is expected to announce today it will acquire a majority stake in online retail fixed-income operator BondDesk Group LLC for an undisclosed amount.
The transaction, which is expected to close in late July, could pave the way for further industry consolidation.
BondDesk is a leading Internet-based platform for odd-lot, fixed-income trading. Through its BondDesk ATS platform, various broker dealers and buy-side firms are connected to a centralized market place where customers can sort through over 30,000 live taxable and tax-exempt offerings.
The company has experienced tremendous growth as online trading has taken greater hold in the fixed-income markets. In the first quarter of 2001, the company posted fewer than 50,000 trades. In the first quarter of this year, the company processed approximately 1.2 million trades. For all of 2003, the company counted 2.0 million transactions. Last year, that number swelled to 4.8 million, according to BondDesk’s statistics.
“Our growth over the past few years has been the result of a combination of a well-executed strategy in conjunction with certain external developments that have naturally increased demand for electronic trading,” said Rob Slaymaker, the chief executive officer of BondDesk Group. “We have enhanced offering and execution quality, which has led to consistent improvement in depth of market and resulting price transparency.”
BondDesk’s growth, and the potential for further expansion appealed to Advent.
“We had tracked BondDesk Group for a long time,” said Chris Pike, a partner at Advent. “As active investors in the securities industry, we’ve been interested in fixed income more broadly, and in BondDesk, we saw an alternative trading system that is addressing a needy part of the market in odd-lot fixed-income execution.”
The deal is Advent’s first foray into fixed income, although the company has a history of investing in financial services companies. In 2002, Advent acquired majority stakes in online broker Datek Online, which later merged with TD Ameritrade, and GFI Group, an inter-dealer broker of over-the-counter derivatives, which it later sold to the public for $560 million in January 2005. GFI Group was initially priced at $24 per share; it closed yesterday at $52.03.
While the deal is not expected to affect BondDesk’s strategy of targeting the odd-lot market or its business operations, management said they would examine various growth opportunities, possibly in Europe where Advent has a strong presence.
“I would say we would be open minded to expanding BondDesk through acquisition,” Pike said. “With all the exchange consolidation going on, there could be other trading platforms that we would evaluate, or we could look to software companies that provide pre- and post-trade compliance or analytics applications.”
In addition to providing customers with access to the market, BondDesk offers its customers an array of trading and price discovery tools, which can be used for compliance as well as investing purposes.
One thing that will change is the company’s board of directors. Currently, the board is comprised of senior management from a consortium of large broker-dealers that own a stake in the company, including among others, Goldman, Sachs & Co., Wachovia Corp., Bear Stearns & Co., and UBS Financial Services. Once the transaction is completed, Advent members will replace the current board member.
The deal comes amid a wave of consolidation among global exchanges.
Last week, the NYSE Group Inc. said it had agreed to merge with European exchange Euronext. That transaction comes on the heels of its acquisition of the Chicago-based electronic stock exchange Archipelago Holdings in April of last year. The Nasdaq Stock Market Inc. recently announced it had acquired a 25% of the London Stock Exchange Group, and made an offer to buy the LSE that was rebuffed. Last year, the Thomson Corp. purchased online trading platform TradeWeb for $385 million plus contingent payments worth an additional $150 million.
What the transaction means for BondDesk rival TheMuniCenter LLC is not entirely clear, although with the sector ripe for consolidation, it would seem reasonable that a future deal could be in the works.
“In this environment, you either acquire, or be acquired,” said TheMuniCenter chief executive officer Tom Vales.
