Investing.com -- IG Group (LON:IGG) on Thursday, in a stock exchange filing, said that it will buy Freetrade, the UK-based commission-free investment platform, for £160 million.
The deal is set to increase the online trading provider's offerings in the UK trading and investments market, allowing the company to tap into new customer segments and expand its capabilities.
Freetrade, founded in 2018, has quickly become one of the UK's fastest-growing self-directed investment platforms.
It has attracted around 720,000 customers and holds assets under administration of £2.5 billion as of the end of 2024.
The company offers a range of products, including over 6,200 global stocks, ETFs, fractional shares, ISAs, SIPPs, and securities lending, all with a focus on transparent pricing.
Its appeal lies in its simplicity and ease of use, which has been key to strong client acquisition and retention.
“We believe strong capital returns, a more streamlined cost base and discounted market valuation present an attractive risk/reward dynamic for IGG shares over FY25,” said analysts at RBC Capital Markets in a note.
The direct investing market in the UK has seen substantial growth and is expected to continue expanding, driven by factors such as increased financial literacy, growing demand for self-directed investing, and pension freedoms.
Freetrade’s success in this market has positioned it as an important player, with its subscription-based model generating diversified revenue streams, including foreign exchange transaction fees and interest income.
In 2024, the platform reported a 32% year-on-year increase in revenue, amounting to £27.5 million. For the first time, Freetrade also posted positive EBITDA, reflecting its successful scaling during a key growth phase.
Through this deal, IG Group will operate Freetrade as a standalone business, maintaining its brand and leadership team, including CEO Viktor Nebehaj, who co-founded the company.
IG intends to invest in Freetrade's development, ensuring the platform's growth is supported with additional talent, new features, and an expanded product suite.
The £160 million deal is expected to close in mid-2025, pending regulatory approvals. IG will fund the purchase through its existing capital resources, which as of May 2024, included surplus regulatory capital of £638 million.
This deal is forecast to deliver a return on invested capital that exceeds the group's cost of capital within three to five years. IG also plans to extend its share buyback program, which was initially set at £150 million, depending on regulatory approval.
“We expect c12% of the current market cap to be returned over the next three years through dividends/buybacks, meaning investors would be paid well to wait if an up-tick in volatility doesn't appear,” RBC added.