Market not anticipating competing bids for Knight Capital

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Either way, likely that Hotspot FX finds a new home.

Hotspot FX logoThings sure can move fast on Wall Street. Just several hours after we blogged about (likely) potential bids emerging for the entirety of market-maker Knight Capital -- not just for one of its divisions, which was the topic of a weekend Wall Street Journal article -- a bid indeed emerged. One of Knight's competitors in the equity market making business, privately held Getco, announced a $3.50-per-share bid for Knight.

The actual real value of the bid is unclear, as Getco didn't offer cash, but rather offered to merge the two companies, using some implied valuation for itself to come up with the $3.50-per-share value for Knight.

Although other competing bids for Knight are still running hot in the Wall Street rumor mill -- including one potentially in cash from the other main competitor in the space, Virtu -- the stock market seemed to brush off those expectations. After initially trading right at the $3.50 Getco offer price, Knight stock settled back a bit Wednesday and closed at $3.41 per share -- indicating that at least in the mind of stock traders, a bidding war for Knight was unlikely to occur. Time will tell...

As for Hotspot FX, as we wrote yesterday we continue to believe that neither Getco nor Virtu are interested in owning a Forex ECN, and are likely to look at selling Hotspot FX to help finance the Knight acquisition (if one indeed happens). Hotspot FX is likely to fetch in the $150 million range, based on recent comps such as the $625 million acquisition of FXall made by Thomson Reuters earlier this year.

For more on Forex industry M&A and valuations, including a list of M&A transactions dating back to 2006 and a valuation comps table, see the LeapRate-Dow Jones Forex Industry Report.

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Guest Wednesday, 23 April 2014

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