Wit SoundView, the online investment banking subsidiary of the Wit Capital Group (Nasdaq: WITC), has agreed to buy online investment firm E*Offering in a stock deal valued at $328 million (US$).
As part of the alliance agreement, E*Trade (Nasdaq: EGRP), E*Offering’s parent company, said it will buy Wit SoundView’s online retail brokerage business and its 100,000 active accounts, as well as purchase approximately $21 million in Wit Capital Group stock.
The agreement also calls for Wit SoundView to be the exclusive provider of initial public offerings, follow-on offerings and other investment banking products to E*Trade’s 2.6 million customers.
“The E*Offering acquisition and our exclusive strategic alliance with E*Trade is another step in the evolution of our corporate strategy,” said Wit SoundView co-CEO Ronald Readmond. “It represents an aggressive move, positioning us to compete successfully for lead manager roles in Internet and new technology offerings.”
The companies said the deal is expected to close in the third quarter of this year, subject to SEC and shareholder approval. E*Trade CEO Christos Cotsakos and Bill Ford of major investor General Atlantic Partners are slated to join Wit Capital Group’s board of directors.
Capital Market Democracy
E*Offering was created in January of 1999 with the intent of “democratizing” the capital markets. It has met with mixed success to date, as it attempts to shoehorn individual investors into the IPO market.
The move by Wit SoundView, which was formed after Wit Capital bought SoundView earlier this year for $325 million, demonstrates confidence in the company’s potential.
Japanese Internet investor Softbank and a battery of venture capital firms are also backers of E*Offering. Together with E*Trade, they will receive 25 million shares, or nearly 25 percent of Wit Capital’s shares. The deal calls for a three-year restriction on the sale of 20 million of those shares.
The agreement comes as the online brokerage industry recently broke the $1 trillion mark in active customer accounts and experienced a surge in new customer accounts. E*Trade is the second largest online broker behind Charles Schwab and has closed the gap in the last quarter.
The company booked fiscal second quarter revenues of $407.4 million and a net loss of $23.2 million.
Wit Capital posted revenues of $106.6 million for the first quarter. It was founded in 1996 and went public in June of last year.