FXCM, one of the foremost Forex brokers in the world has proposed a merger with Gain Capital Holdings, the parent company of Forex.com, another one of the world's most prominent brokers. As outlined in a press release and published letter from FXCM's CEO Drew Niv to Gain Capital's Chairman, Peter Quick, and CEO Glenn Stevens, there would be several goals of the merger. Firstly, wrote Niv, "?FXCM believes that the substantial potential operating and capital synergies between the two companies would result in an accretive deal with a strong growth profile and improved economies of scale." Additionally, the merger would release close to $100 million of currently restricted cash (between the two companies), while increasing economic efficiency, largely as it relates to regulatory fees and the amount of funds that each company is currently required to segregate independently. Operating under one regulatory umbrella could arguably reduce these fees and funds exponentially. Finally, it has been suggested that a merger of these two Forex giants would yield as much as $70 million in incremental run-rate EBITDA (earnings before interest, taxes, depreciation and amortization) once the companies are fully combined.
A conference call will be held today, April 9, 2013, at 8:15am EST, to discuss the details of the proposal. Interested parties located in America can dial in to 877.303.9132. International participants can participate by calling 408.337.0136. The conference ID number is 34133919.
In the conference call, FXCM will suggest that Gain shareholders receive 0.3996 shares of FXCM Class A common stock for each share they own of Gain common stock. All told, this sum would represent $210.4 million in total value, which is a 25% premium to Gain's closing share price as of April 8 of $4.27. FXCM is also willing to pay up to $50 million in cash in lieu of FXCM shares, should Gain shareholders wish to take this option. FXCM's stock price closed at $13.39 on April 8, 2013.
The proposed transaction would give Gain shareholders 0.3996 shares of FXCM Class A common stock for each share of Gain common stock. Based on FXCM's closing price of $13.39 on Monday, April 8, 2013, this results in an offer price of $5.35 per share of Gain common stock, which in aggregate would represent $210.4 million in total value. This price represents a 25% premium to Gain's closing share price on April 8, 2013.FXCM is also prepared to offer up to $50 million in cash consideration in lieu of FXCM shares.
In its presentation to Gain Capital executives, FXCM highlighted that:
- Increased, operating scale enables us to maintain / grow trading volume and deliver more consistent results despite significant drops in volatility; and
- International diversity has helped us mitigate the impact of changes in local regulations of any one particular key market, and that diversity plus our agency model mitigates exposure to potential adverse regulatory changes in the US market in particular
Niv closed his letter to Gain Capital by expressing that "This proposed merger is the highest priority for FXCM, and we hope that Gain is as excited as we are about the potential a combined company could have."
There is no question that a merger of such epic proportions would significantly alter the way the Forex world functions as a whole. Smaller brokers would certainly have difficulty competing against such a large entity (many of whom are already struggling today), traders may find themselves with fewer broker options and regulatory bodies are likely to balk at the loss of revenue generated by each of these brokers individually. On the other hand, the combination of two of the top Forex brokers may raise the bar for others in terms of professionalism and security, and may encourage (or force) traders to choose a brokerage that will provide the highest standards of service.
Whether the merger will happen remains to be seen, but it will certainly be an interesting process to watch, whether it works out or not.