Best Trade Yet for ATD: Citigroup to Pay $680M for Company based in East Cooper

Automated Trading Desk has for years been approached by prospective buyers. But none of the deals ever panned out.

Steve Swanson, chief executive officer of Mount Pleasant-based ATD, said either the price wasn't right or the bidder was proposing to make drastic changes to the technology company's operations. "Usually, something was wrong," he said. Until now, that is.

Financial behemoth Citigroup Inc. said Monday that it will pay $680 million in cash and stock to snap up ATD, a highly sophisticated, homegrown business that now handles 6 percent of the trades made on the New York and Nasdaq stock exchanges. Swanson said the company's employee base and computer nerve center will remain in Mount Pleasant, where it has staked a large claim on Wall Street from 750 miles away. The company handles roughly 200 million transactions a day, mostly on behalf of large institutional investors and its own trading account.

The deal is easily one of the largest local business acquisitions on record and undoubtedly will make wealthy many of ATD's 115 employees, nearly all of whom own a piece of the 19-year-old company. As part of Citigroup, ATD gains the clout of one of the world's biggest banks, resources that promise to make the trading company an international player within three years, rather than the decade it would have taken had it remained independent.

"The fit is really amazing," Swanson said. "This is thrilling. It's the most exciting thing I could have envisioned for the company."

In ATD, Citigroup gains one of the market leaders in the fast-growing business of executing rapid-fire computerized stock trades and capitalizing on tiny changes in share prices. The Mount Pleasant operation at 11 e-Wall St. will be folded into its new owner's global equities unit, headed by James Forese. "The combination of Citi's global equities business and ATD will create a leading U.S. stock trading platform." Forese said in a statement Monday.

The acquisition is the latest in a string of deals Citigroup has made in recent years to strengthen its electronic trading business. Previous investments have included Lava Trading, TD Waterhouse Capital Markets and OnTrade ECN.

Swanson, a graduate of Wando High School and the College of Charleston, will remain CEO of ATD and take a managing director title at Citigroup. ATD's chief financial officer, Peter Kent, will become ATD's chief operating officer.

A routine sales call...

ATD had planned to sell shares in its business to the public in about three years. It found a partial partner early this year in Technology Crossover Ventures, one of Silicon Valley's biggest venture-capital companies. TCV's $60 million stake will be bought out by Citigroup. ATD met with Citigroup officials in February to try to persuade the bank to route more of its stock trades through its computers. The routine sales call quickly escalated to a buyout negotiation, as the New York-based financial giant decided the trading company was a good investment.

Executives of ATD and Citigroup's trading operations have been shuttling between Wall Street and the Lowcountry for months as they crunched numbers and put the deal together. Word of the impending sale began to leak last week.

Citigroup plans to grow ATD's operation quickly, plugging it into trading floors around the world, according to Swanson. Construction crews are rushing to finish a major expansion of ATD's Mount Pleasant headquarters. "The thing that I love about this deal is we'll be exposed to more order flows immediately than we probably could ever have developed on our own," Swanson said.

The $680 million acquisition will dwarf the biggest recent buyouts in Charleston when it is finalized in the third quarter. In comparison, Digital Lifestyle Outfitters, a maker of iPod accessories, garnered about $110 million when it was snapped up by a Dutch electronics company this spring. Blackbaud Inc., one of the biggest employers in the area, raised about $65 million when it went public in 2004. The current owners of Kiawah Island Golf Resort paid $90 million for the beach-front getaway in 1993 and 1995, based on inflation-adjusted figures.

Grabbing market share

Despite its lofty sticker price, ATD has grown slowly and kept its footing during some heavy blows. The company's complex systems of computers and equations were initially developed as a way to predict the outcome of horse races by Dave Whitcomb, who taught finance at New York University and Rutgers University, and James S. Hawkes, a computer engineer and former College of Charleston professor. Their model was quickly transferred to bulls and bears.

Swanson got in almost on the ground floor. As a College of Charleston mathematics major, he had been working for a software business Hawkes owned when ATD was created. Initially, Whitcomb pitched the business plan to large Wall Street trading companies in the hope of finding a buyer. They were skeptical about the concept, Swanson recalled in an interview five years ago.

ATD makes money regardless of which direction stocks go, but its profits have slumped when bear markets have cut into trading volumes. ATD also took a hit in 2001 when major U.S. stock markets started quoting their prices in decimals rather than fractions. But what it lost in margins, ATD gained in volume as it grabbed bigger chunks of the market by convincing customers that its computers were the most efficient trading machines around. The company also threw a lot of money away developing products that went head to head with huge Wall Street companies. Swanson said the company unwisely got in spending wars with blue-chip brokerages.

Now that his paycheck will read "Citigroup," Swanson won't have to worry about that anymore.