Investment Technology Group (ITG)

As evidenced in The Economist's piece "Battle of the Bourses" the trading exchange industry is about to undergo considerable consolidation. ITG's Posit offering is currently the 4th largest dark pool operator. Industry forecasts are calling for nearly 200% growth for crossing-network/dark pool operators over the next 3 yrs. Consolidation is inevitable as traditional exchanges look to stay competitive. ITG poses the most compelling argument for a takeout given its current valuation and to a lesser extent its history with D.E. Shaw when the hedge fund attempted to push management towards a sale of the company nearly a year ago. Over the 1st quarter of '08, D.E. Shaw has apparently given up and liquidated its entire 4mil position which some would suggest eliminates any hopes for a takeout in the near term. I would suggest that this clears the hurdle for ITG to finally put itself up for sale. The company trades at a 9 multiple on an EV/EBITDA basis compared to other competitors in the industry trading at multiples in the mid to high teens and even higher, and what's even more bizarre is the tight trading range the company has continued to hold in recent months even amidst the significant decline in other exchange traded shares (CME, NYX, ICE, NDAQ). Long story short... A bidding war could certainly send shares of ITG to over $65.