Summit Invests $90M in Brokerage

Online brokerage services provider OptionsXpress last week received about $90 million in a private equity investment from Summit Partners. The company said the funding will help it expand its market share and maintain its independence.

The Chicago-based company confirmed Summit’s reported minority stake as being between 25% and 40 percent. Goldman Sachs acted as an advisor for OptionsXpress. Katten Muchin Zavis Rosenman and Kirkland & Ellis served as legal counsel for OptionsXpress and Summit Partners, respectively.

Its management, family, friends and other angel investors, including G-Bar Ltd. Partnership, initially funded OptionsXpress, which was founded in 2000. It quickly became cash flow positive in 2001 and had 2003 revenue of about $50 million. The company says it represents about 3.5% of all U.S. listed options volume.

The funding will be used to recapitalize the company and to enhance its educational site, technology and software. It may also grow by acquisition. “We always have our eyes open for things that make strategic sense,” says OptionsXpress Chairman James Gray.

If OptionsXpress were to buy or merge with another company, then that would be in keeping with the trend of online brokerage providers. Late last year, Ameritrade Holding (NASDAQ: AMTD) acquired Bidwell & Co. for $55 million. A year earlier, it bought Datek for $714 million.

TD Waterhouse has been in talks with E-Trade about a possible merger, though last week those talks stalled.

“There’s been a ton of consolidation that’s gone on in the online brokerage space,” says Christopher Dean, a Summit Partners vice president who will join OptionsXpress board of directors. “This funding allows them to make the investments they need to make to stay the best in class.”

A new independent board member will join Dean within the next 60 days.

OptionsXpress currently employs 80, but may double that by next year. The company predicts 50% quarterly revenue increases throughout 2004.

OptionsXpress says it has 70,000 accounts and expects to have more than 100,000 by the end of this year.