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Venture capital investment unexpectedly paved way for ATD deal
By Dan McCue
Staff Writer
A decision by a Palo Alto, Calif.-based venture capital firm to invest $60 million in Automated Trading Desk last January was the trigger that ultimately led to this week’s agreement to sell the company to Citigroup.
Jeff Martin, president of financial services for the Mount Pleasant-based company, said ATD as a whole was definitely not for sale when the company agreed to sell a minority stake to Technology Crossover Ventures for the $60 million infusion of funding.
“Quite frankly, we had taken in the venture capital to fund our own expansion plans and those plans were moving along quite nicely,” Martin said.
However, before the ink was even dry on the news release announcing the January venture capital deal, word of it piqued the interest of several financial industry companies who immediately began to forge a partnership with the 115-employee, high-tech trading company.
“There’s no question, a lot of firms became aware of who we were as a result of our receiving that private venture money, but the contact that intrigued us most was the one made by Citigroup, which, like us, was looking to expand its technological reach into international markets,” Martin said.
Initially the two companies talked about forming some kind of joint venture. But as those discussions continued and details were fleshed out, it began to become apparent that a merger made the most sense.
“This is probably some time in February, early to mid-first quarter, certainly,” Martin said.
Once the companies came to a meeting of the minds, the due diligence involved in the transaction took far longer than anyone expected.
“Due diligence always takes longer than you expect,” Martin said with a chuckle. “But I think in this case that only helped to increase everybody’s comfort level with the deal.”
Citigroup, one of the world’s largest financial institutions, is buying ATD for $680 million, including $102.6 million in cash and 11.17 million in Citigroup shares.
It has said it intends to expand ATD’s platform worldwide, as more customers demand the ability to trade quickly and at low cost. The New York-based bank operates in more than 100 countries.
ATD had been planning its own entry into the international securities trading market for more than a year and considered such a move part of the three- to five-year plan of the company, Martin said.
“Now, given the tremendous resources of Citigroup, we’ll be able to enter those markets in less than a year or two,” he said.
“At the same time, Citigroup does about the same volume of trading as we do on a daily basis, so once this deal is formally executed, which we expect in the third quarter of this year, we’ll double our daily volume of transactions,” Martin added.
It 2006, ATD traded 6% of the daily volume of both NASDAQ and the New York Stock Exchange, and on average handled more than 200 million shares a day.
“As part of Citigroup we’ll have a much larger percentage of market flow, thereby giving our clients a better execution price at the end of the day,” Martin said. “It’s all about pushing volume through our system.”
Citigroup has indicated that it agreed to purchase ATD because it wanted both the company’s technology and its people. “The idea is to leave the culture in place and to allow it to thrive,” Martin said.
“That’s one of the biggest reasons we’re staying in Mount Pleasant. What they wanted was what we have here. They don’t want to change that,” he said.
Long before the merger was a sparkle in anyone’s eye, ATD was already expanding its facility and had plans to hire at least 100 more workers, mainly computer programmers and also some traders.
Martin said those plans have not been changed, and in fact, may be accelerated as a result of the merger.
“I think the biggest change will be the scale on which we discuss and coordinate strategy,” Martin said. “Steve Swanson will still be our CEO, and I think what Citigroup’s people will bring to future strategic discussions is the knowledge they already have of many of these markets, the intricacies of regulations and the like.
“You know, at the end of the day, there are profit opportunities everywhere and being the first mover into a market, as we are with Citigroup, is a huge advantage,” he continued. “They are big on aggregating market flow and want to own that market flow and have an opportunity to interact with it before the competition gets there. Our job is to help them achieve that goal.”
As for Technology Crossover Ventures, their minority stake in the company will be cashed out as soon as the Citigroup/ATD deal receives regulatory approval.
ATD’s spokeswoman, Mary Waggoner, declined to comment on how much their $60 million investment grew in seven months as a result of the deal.
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