Is Saxo Bank worth $3 billion?


An interesting news item surfaced on Bloomberg yesterday, quoting an article in Danish newspaper Borsen, that unnamed US private equity firms were close to buying a 33% stake in Saxo Bank for 5 billion DKK (approximately $975 million) – valuing Saxo Bank at nearly $3 billion!

Specifically, the Borsen article reports that Saxo Bank shareholder General Atlantic (22%) has hired investments banks JP Morgan and SEB Enskilda to sell its stake, alongside (possibly) the 9.9% interest in Saxo Bank held by Portugal’s Espirito Santo Financial Group. (Most of the remaining 67% of Saxo Bank is held by its co-founders Kim Fournais and Lars Seier, and other employees). And, reports Borsen, a deal is close.

While we would not be at all surprised by a transaction whereby new private equity investors buy out the existing outside investors in Saxo Bank – such “flipping” transactions happen all the time, across many different industries – we would be surprised by these suggested terms and valuations. By comparison, FXCM – which did more volume and earned more net profit than Saxo Bank in the second half of 2010 – is currently trading at a market cap of about $825 million, or less than a third of the rumored price for Saxo Bank. And as we point out in our Online Forex Industry Report, M&A valuations in the sector tend to be well below publicly traded multiples.

We believe it would be very surprising for sophisticated investors to pay (essentially) more than three times the value of FXCM for a stake in Saxo Bank. While there is more to Saxo Bank than just its online Forex and CFDs business, “FX” remains key with more than 70% of income deriving from this asset class. “Other” businesses at Saxo could not possibly make up the more-than-$2 billion valuation gap.

We continue to believe that Saxo Bank, a member of LeapRate’s Approved List of online trading firms, is one of the best firms out there in the online Forex business, a well-managed leader and innovator in the sector. However, the numbers put out by Borsen just do not make any sense to us. If Saxo Bank were to go public any time soon, barring a sudden surge in volumes / revenues / profits at Saxo Bank we do not believe that the public markets would give Saxo Bank anywhere near such a valuation.

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Is Saxo Bank worth $3 billion?

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