Open Editor's Digest for free
Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.
British broker TP ICAP has spun off a fast-growing division that sells data to traders as it tries to respond to pressure from its investors to return capital.
The data unit, Parameta Solutions, was registered in February as an independent company as TP ICAP prepared a potential sale or listing, two people familiar with the matter said. Parameta is registered as a separate company with the Jersey Companies Register.
The decision to spin off Parameta comes after intense pressure from some of TP ICAP's largest shareholders to offload it due to the broker's falling share price. One investor said Parameta could generate up to £1.5bn from its IPO, more than TP ICAP's full market capitalization of £1.46bn, based on its share price on Friday.
In 2022, the City of London broker was criticized by a US hedge fund for a “catastrophic decline in its share price”, and investors called on the company to either sell itself or Paramita. Investors said the dismissal of Paramita indicates those plans are now on track.
TP ICAP's share price has recovered about 70 percent from its 2022 lows, but remains depressed, trading flat over the past year.
One shareholder said a listing was the “most likely” outcome for Paramita. They added that by demerging the company, “the main objective is tax efficiency in a potential IPO.” [or] sale”.
TP ICAP declined to comment.
In its first-half 2023 results, the FTSE 250 broker said its Parameta growth strategy was “all about harnessing the valuable data generated by our business and external partners”. “Operationally, Parameta Solutions is already separate from the group and has, for example, its own management team,” she added.
“Obviously, in the long term, that business probably won't exist at TP ICAP,” another investor said, adding that Parameta was a “much more valuable business.”
“If you legally separate those entities and [sort out] Tax impact. . . “It is easier to sell or rotate,” the investor added.
Parameta's growth outpaces that of TP ICAP's global brokerage unit, where nearly 2,500 brokers connect buyers and sellers in the finance, energy and commodity markets, earning money from commissions on trades.
In the third quarter of 2023, Paramita's revenues increased by 7 percent, while brokerage revenues decreased by 2 percent. Paramita's adjusted EBITDA and amortization margin was 43 percent in the same period (the company's earnings as a percentage of revenue), far exceeding TP ICAP on the same measure at 17 percent.
“This business is of very high quality and continues to grow strongly,” the shareholder added.
