Why is LMAX only worth £3.6 million?

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LMAX lost another £4.5 million in the first six months of fiscal '13.

LMAX logoLMAX's spinoff to management (backed by ex-Betfair Chairman Ed Wray) was certainly not unexpected, as we had blogged about Betfair's likely exit from LMAX just several days prior. But the value at which it was done, at a company valuation of just £3.6 million, with £2.4 million in cash consideration paid upfront by management for a 67% stake, did surprise a lot of industry observers. Note that former LMAX investor Goldman Sachs exited its 25% position in March for about £10 million -- implying a company value of about £40 million just nine months ago (although that also included a stake in Tradefair, which is being kept by Betfair).

Digging deeper into Betfair's statements and in conversations with those involved, LeapRate has learned that it just boiled down to the fact that LMAX continues to lose money. Betfair did in fact speak with potential third party purchasers of the business, but none of them wanted LMAX as is, due to its high cost of operations, and were not willing to pay much for LMAX's existing client base. Betfair's options boiled down to shutting things down, or taking the management buyout proposal. And £2.4 million (plus a retained 33% stake) is better than nothing.

Specifically, LMAX had

  • Revenues of just £1.8 million ($2.9 million) in the first six months of fiscal '13 (ended Oct 31. 2012)
  • EBITDA six-month loss of £4.5 million, about the same as last year
  • Client assets of £18 million

On the positive side, LMAX itself reported that trading volumes have been moving in the right direction, increasing about 20% monthly over the past few months. (We reported earlier that LMAX hit $25 billion in monthly volume for the first time this past May). Nevertheless, with very low margins the new ownership team will likely have to severely cut costs while continuing to rapidly grow volumes and revenues to avoid running out of cash.

A last thought -- the buyout doesn't totally sever Betfair's ties from LMAX. Aside from the 33% retained stake, the new buyout group is led financially by Ed Wray -- although Mr. Wray is no longer Chairman of Betfair, he remains one of Betfair's largest individual shareholders. with an 11% stake.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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