Island ECN to be Spun Off As Separate Company
December 1, 2000 -- A group of prominent investment firms, led by Bain Capital and featuring TA Associates and Silver Lake Partners, has completed an agreement to invest $700 million to acquire a majority interest in both Datek Online Holdings Corp., which operates one of the nation's most innovative online brokers, and The Island ECN, Inc., a technology leader in alternative trading systems. The investment is the largest private equity investment in an online financial services firm.
Datek Online Holdings will acquire all voting shares of stock held by a group of original shareholders, including former Chief Executive Officer Jeffrey Citron. Current management, led by Ed Nicoll, Chairman and Chief Executive Officer of Datek Online Holdings Corp., and the investment group will now own 100 percent of the voting control of Datek Online Holdings.
As part of the transaction, The Island ECN will be spun off as a separate company. Island's Board of Directors will consist of current management and members of the investment group.
"We are pleased that three of the nation's most prestigious and respected private investment firms have endorsed the business models of both Datek and Island," Mr. Nicoll said. "Our new partners will put us in a strong position to build on the many successes that we have already achieved." Mr. Nicoll added that the investment also provides the capital needed to develop new products and expand into new areas.
"Datek and The Island ECN enter a new chapter in their growth and innovation through this investment, operating as independent businesses with strong, focused management teams," said Steve Pagliuca of Bain Capital. "Datek has the technology and the resources to build on its current position as a leader in the online investment field and to elevate the standards for serving retail investors."
Kevin Landry of TA Associates said, "We are excited and pleased to be a part of the evolution of Datek and Island as they continue blazing the trail for the securities industry. Datek Online has one of the most loyal and knowledgeable groups of customers in the online investing field. That's due to the hard work and superior innovation consistently displayed by Ed Nicoll, Matt Andresen, and their management teams."
Roger McNamee of Silver Lake Partners said, "Datek and Island's ability to increase market share in a difficult environment has proven the strength of their business models. For the last two quarters, Datek Online's brokerage unit has been growing at a faster rate than any of its major competitors. Island has been taking market share and significantly increasing its trading volume. Both Datek Online and Island are the technology leaders in their respective segments. This is the right team, with the right Internet technology at exactly the right time to transform the brokerage industry. Silver Lake is delighted to join the Datek team as it delivers the fairest, most reliable and most innovative services to knowledgeable investors."
Greg Smith, senior research analyst at Chase H&Q, noted, "Datek Online and Island are among the elite of the online financial services industry. Over the past few quarters, despite a difficult market environment, their innovative and powerful business models have allowed them to continue to stand out in a crowded field."
Credit Suisse First Boston Technology Group acted as placement agent in this transaction.
About Datek Online Holdings Corp.
Established in 1998, privately held Datek Online Holdings Corp. is one of the fastest-growing financial services companies in the United States and through affiliates provides swift access to financial services through innovative technology. The Company's primary businesses are Datek Online Brokerage Services LLC, a pioneer in the online brokerage industry; iClearing LLC, a securities clearing operation; and Watcher Technologies LLC, a provider of cutting-edge trading systems for the professional trading industry.
Datek Online Brokerage Services has steadily increased its market share this year and is now the fourth largest online broker in terms of daily online transactions, according to Chase H&Q. Datek's funded accounts have increased 84% since the beginning of the year, ending the third quarter of 2000 with a total of 623,624.
Datek's leading-edge technology is widely recognized and continues to set the pace with a number of industry innovations. The online brokerage unit was the first major online broker to introduce trading in decimals, the first to offer a continuous 12-hour trading day for Nasdaq stocks, the first to provide a 60-second commitment to execute a marketable order, and the first to deliver free, real-time streaming quotes. Datek Online also was the first brokerage firm to rebate payments that it received for order flow. For more information on Datek's services and free Streamer® real-time quotes, see www.datek.com.
Watcher Technologies LLC, the developer and licensor of leading trading technology, has been steadily increasing its market share. Watcher launched its new flagship product, the WatcherPlusTM trading platform, earlier this year. Since the beginning of 2000, Watcher Technologies has signed 12 new clients, bringing the total number of Watcher customers to 14.
IClearing, one of the country's largest clearing firms by transaction volume, has achieved strong growth, adding five new correspondents during the second half of 2000. The unit cleared 27.5 million trades in October 2000, up 65% from October 1999.
About The Island ECN
Island was founded approximately three years ago with the intent of providing all market participants - from individual investors to large financial institutions - with the ability to execute transactions on a level playing field, at an extremely low cost without the presence of intermediaries. During the third quarter 2000, Island's trading volume exceeded 12.42 billion shares, which accounted for a total dollar volume of more than $830 billion. Visit Island at www.island.com.
About Bain Capital
Bain Capital is a global private equity firm that manages several pools of capital including private equity, high-yield assets, mezzanine capital and public equity with over $12 billion in assets under management. Since its inception in 1984, the firm has made private equity investments and add-ons in over 225 companies, in a variety of industries, including technology and communications, media and entertainment, healthcare, consumer goods and industrial products. Bain Capital partners with exceptional management teams in order to build long-term value in its portfolio companies. Headquartered in Boston, Bain Capital has offices in New York, San Francisco and London. For more information visit www.baincaptial.com.
About TA Associates
TA Associates was founded in 1968 and today is one of the largest growth capital firms in the country. With offices in Boston, Menlo Park and Pittsburgh, the firm's $5 billion of capital is used to support growth, finance acquisitions and fund share repurchases and management buyouts. TA's investments are focused on growth companies in technology, financial services and health care. Since inception, TA has invested in over 320 companies, and in the last five years has helped companies raise over $15 billion through public offerings, bank financings and mergers and acquisitions. More information can be found at www.ta.com.
About Silver Lake Partners
Silver Lake Partners is the leading private equity investment firm focused on large-scale investments in technology and related growth companies. The principals of Silver Lake, which include Jim Davidson, Glenn Hutchins, Dave Roux and the partners of Integral Capital Partners and Kleiner, Perkins, Caufield & Byers, have extensive experience investing in, managing, and financing technology and other growth companies. Silver Lake also works closely with a network of technology industry executives, who bring valuable insight and assistance in sourcing transactions, analyzing industry trends, building management teams, and adding value to Silver Lake's portfolio companies. Silver Lake has offices in Menlo Park, California and New York, New York.
For more information on Silver Lake Partners, visit www.slpartners.com.