Industry Updates

WisdomTree buys exchange traded alternatives business of ETF Securities


ETF Securities is selling its European exchange-traded commodity, currency and short-and-leveraged business to WisdomTree Investments, the Nasdaq-listed fund manager for $611m. The European ETC platform run by ETF Securities has $17.5 billion of assets under management spread across 307 products, including the flagship physical gold products PHAU and GBS.

We understand that this transaction does NOT include either the European exchange traded funds business - called Canvas - nor the American or Australian business. Based on the announcement these would seem to be staying with a core ETF Securities business.

This deal follows hot on the heels of Invesco's recent purchase of both Source and the US based Guggenheim ETFs business. The speed of consolidation amongst ETF providers seems to be increasing and this deal firmly catapults WisdomTree into a more powerful position in Europe - increasingly involving a head to head battle with Powershares Source which also boasts a strong footprint in alternative assets and equities. WisdomTree first bought into Europe via the takeover of Boost back in January 2014 - Boost's founder was Hector McNeil and Nik Bienkowski, themselves ex ETF Securities executives.

Assuming the deal with ETF Securities completes in quarter 1 2018, WisdomTree would become the 9th largest ETP sponsor globally with combined assets of $66 billion - it would also be the largest independent ETP provider. The US business is listed on the US market with the ticker WETF, and has a market cap of $1.8 billion based on a share price of $11.94 a share. WisdomTree's share price has increased over the last year, from just under $12 a share to around $15 a share but this deal could prove popular with US shareholders - we understand that the ETF Securities business being sold is solidly profitable. In 2016 WisdomTree - traditionally strong in smart beta style equity products (with an income bias) - had revenues of $219m (down from ($298 in FY 2015) and net income of $26m.

Graham Tuckwell, Founder and Chairman of ETF Securities commented, "We are pleased to be selling our European exchange-traded commodity, currency and short-and-leverage business to WisdomTree and to become the largest shareholder in the company. I believe this combination creates a uniquely positioned firm which will flourish in the years ahead, continuing to deliver huge value for customers and stakeholders. ETF Securities has a strong cultural fit with WisdomTree as both firms have been built from scratch by teams who have worked closely together for many years and who show an entrepreneurial spirit in seeking to deliver innovative and market leading products for their customers."

Terms of the deal have also been announced: $253 million of cash (funded by $200 million of newly issued debt plus $53 million of cash on hand) and a stock consideration of 30 million WisdomTree shares. Based on Friday's market close price, the total consideration is valued at $611 million. By comparison Invesco's purchase of Guggenheim's ETF business brought in assets of $17 billion but the headline cost was $1.2 billion.

No details have yet been released on the profitability of the core ETC business run out of London by ETF Securities but its major products such as the physical gold products (PHAU and GBS) and its short and leveraged business are thought to enjoy relatively high profit margins. Credit Suisse is acting as exclusive financial advisor to WisdomTree and as lead arranger on the debt financing.

We also understand that post deal, ETF Securities would become a major shareholder in WisdomTree. Voting rights associated with the stock consideration will be capped at 9.99% and will represent initial ownership of approximately 18% of WisdomTree's outstanding common stock on an as-converted basis.

The remaining businesses within ETF Securities will include the US business, with a strong footprint in precious metals trackers, the fast-growing Australian business (which has both equities and alternatives funds within the mix) and the Canvas white label ETF platform in Europe.

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