Situation
Since 1994, Electronic Share Information Ltd (ESI) has been a market leader in offering information services over the Internet. As of June 1998, the company had approximately 180,000 registered users.
In 1997, ESI's board decided to offer brokerage services in addition to information services over the Internet. As a result of this decision, the board was keen to find a strategic partner in the US that had already been successful in online trading in the competitive US market. In mid-1997, on behalf of the majority ESI shareholder, ARC Associates made the initial contact with a significant E*TRADE Group Inc. shareholder and subsequently received a mandate to advise ESI on a potential strategic investment by E*TRADE.
Approach
After the initial ARC contact, ESI management and E*TRADE management developed a joint operating plan, and consequently agreed a memorandum of understanding at the end of January 1998. ARC Associates then worked both with ESI shareholders and management and with E*TRADE management to agree on the terms and conditions of the valuation and the terms of the Shareholders' Agreement.
The Transaction
E*TRADE invested in a new holding company called E*TRADE UK (Holdings) Ltd (ETUK) in return for a shareholding of approximately 28% in ETUK on a fully-diluted basis. The investment consisted of a combination of cash and a contribution of assets-in-kind.