US market operator IntercontinentalExchange (ICE) has signed a definitive agreement to acquire electronic credit derivatives trading platform Creditex in a cash and stock deal worth around $625 million.
Founded in 1999, Creditex provides electronic execution services in the credit derivatives market. The system is now used by more than 1000 credit derivatives traders at the world's top financial institutions. Creditex has two operating subsidiaries - the T-Zero electronic affirmation platform for credit derivative and electronic dealer-client list execution platform, Q-WIXX.
Under the deal ICE will pay $565 million in stock and $60 million in cash for the Creditex group, plus a working capital adjustment to be finalised at closing.
Upon the closing of the transaction, expected during late third quarter 2008, Creditex will be a wholly-owned subsidiary of ICE, operating under the Creditex name. ICE says it has invited senior Creditex management to continue with the combined company.
The exchange says the transaction is expected to be accretive in 12 to 18 months from closing. The deal is expected to generate between $9 million to $14 million in new revenue and savings in 2009.
Commenting on the acquisition, ICE chairman and CEO Jeffrey Sprecher, says: "We believe that together we can meet the demand for enhanced operational and risk management tools required by dealers and their clients today. The credit derivatives sector is one of the largest segments of the OTC market, and we expect that the highly regarded team at Creditex will continue to lead with innovative solutions to ensure that liquidity and risk management tools evolve with these markets."
ICE says it sees "significant additional opportunities" for the expansion of Creditex's trading model to other interdealer OTC markets beyond credit derivatives. Creditex's technology platform already supports a range of OTC asset classes and its proprietary block-trading technology can be applied to other markets where dealers require efficient, anonymous execution in large notional amounts, says ICE.
News of the acquisition comes just days after bank-backed clearing house Clearing Corporation (CCorp) disclosed plans to launch a central clearing facility for over-the-counter (OTC) credit derivatives in the third quarter.
Creditex is one of 17 financial services companies that hold shares in Chicago-based CCorp following a restructuring of the clearing business last year.