GAIN Capital to acquire GFT, fends off FXCM

GAIN Capital Holdings has signed a definitive agreement to acquire Global Futures & Forex, LTD (GFT), a global provider of retail forex and derivatives trading, and simultaneously snubbed FXCM in the process.

FXCM recently announced that it had made an official offer to buy Gain Capital. Both are publicly traded companies. If the proposal had turned into a deal, it would have created a broker with $1.6 billion of client assets. That dream appears shattered as some media outlets are reporting a complete withdrawal by FXCM based on this latest development. The initial bid was unsolicited. This development has made the potential acquisition irrevocably unattractive for FXCM.

Drew Niv Founder and CEO, FXCM

Drew Niv
Founder and CEO, FXCM

The purchase price is approximately $107.8 million which, including $80 million of GFT cash at closing, results in a net purchase price of $27.8 million. The purchase price will be paid with $40 million in cash, a five-year $40 million seller note and the issuance of approximately 4.9 million shares of GAIN common stock. Both companies will initially retain their separate brand identities, while benefitting from significant synergies and capabilities across their complementary businesses. The transaction is expected to close in the third quarter of 2013, subject to regulatory approvals and customary closing conditions.

GFT has built an extensive network of partners throughout the world that accounted for over 75% of GFT’s retail trading volume in 2012. This strong partner business complements GAIN’s market-leading retail brand, FOREX.com, and the combined company will source approximately 52% of its retail volume from partners, with the remaining 48% coming from direct retail clients. In addition, GFT’s growing Sales Trader business, which accounted for approximately 40% of GFT’s total trading volume in 2012, fits well with GAIN’s institutional execution desk, providing a substantial opportunity to expand the Company’s institutional business.

The transaction is expected to be accretive in the first full quarter after closing, and first year operating synergies are estimated at $35-$45 million. The combined company will have pro forma client assets of approximately $650 million, a 2013 revenue run-rate of $329 million, based on first quarter 2013 revenues of $49.8 million and $32.5 million for GAIN and GFT, respectively, and a 2013 pro forma EBITDA run-rate of $77 million, based on first quarter 2013 EBITDA of $7.5 million and $1.8 million for GAIN and GFT, respectively, and assuming the mid-point of first year operating synergies achieved.

“Following our successful acquisition of GFT’s U.S. business in December of 2012, we recognized that combining GAIN’s operations with GFT was a significant opportunity to grow our business across the spectrum of retail and institutional products.The combined company will have a deeper global footprint, a robust offering of more than 12,500 financial products, and industry-leading trading platforms and tools. Our larger scale will also enhance GAIN’s ability to take advantage of improved market conditions, while providing greater resilience at times of weak volatility,” said Glenn Stevens, CEO of GAIN Capital. “This combination builds upon GAIN’s strong track record as a successful industry consolidator and creates an even more robust platform for future consolidation and growth.”

“This transaction is a natural fit, as it combines two highly complementary businesses to create a new leading player in the industry,” said Gary L. Tilkin, CEO and founder of GFT. “Consistent with our history of partnering with respected market leaders, GAIN has a strong management team and an excellent reputation in the industry. I am enthusiastic about this opportunity to leverage our combined strengths to unlock significant value for both customers and stockholders.”

Upon the completion of the acquisition, Mr. Tilkin will hold a 12% equity interest in GAIN and will become a member of GAIN’s Board of Directors.