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Among the mergers, aquisitions and corporate IPOs that have dominated the FX industry during the last two years, last Friday’s acquisition of British multi-asset CFD and spread betting company City Index ranks highly as a massive deal which is likely to change the landscape of the retail FX sector.
LeapRate was the first to report the transaction, which involved publicly listed North American FX giant GAIN Capital handing over $118 million for the entirety of City Index, with full details having been announced by GAIN Capital on the financial aspects of the acquisition.
With such interest on the direction in which GAIN Capital will take City Index, LeapRate today spoke cordially to GAIN Capital’s CEO, Glenn Stevens.
Mr. Stevens is one of the FX industry’s most focused leaders, heading up one of two veritable giants with gusto and aplomb, having overseen a number of high value acquisitions during his leadership. With regard to the rationale behind the purchase of City Index, Mr. Stevens explained that “I think the term ‘venerable brand’ applies to City Index and that the company has navigated the market effectively. This is a great basis for future development. Every firm has its peaks and troughs, but City Index has been there a long time. Given some new energy and additional reasources, it’s an environment we can really leverage.”
Indeed, the conundrum as to how to grow a company is of significant importance when looking at potential acquisitions. Mr. Stevens explained to LeapRate that “In some cases we can grow organically and otherwise through acquisitions. When I look at these transactions, I feel there are a few different considerations. One important factor is introspection, and then we have to look at the executive team, and all the key staff. The questions are: How can we get better? What may require addressing, and “How can we get out of any weakness?”
“This applies to the period of consideration as to which company to buy, if any” continued Mr. Stevens. “It’s one of those scenarios in which, if we can see a company that needs some improvement but has fantastic basic components, we can find a way to buy it and turn it around. Lets get better – thats the solution” he enthused.
When deciding which company to buy, Mr. Stevens indicated to LeapRate that GAIN Capital has a specific interest in growing its CFD presence within the UK market. Following a very successful purchase of compatriot GFT, GAIN Capital wanted in on the British market, with a view to globalizing a British CFD brand. Indeed, Mr. Stevens has a lot of confidence in the potential of growing British CFD firms overseas, categorically stating that “A number of companies in Britain would have made sense for us, however with City Index, there was a mutual perception of a potential win-win situation, and you do not get that very often.”
Indeed, when asked if other well established British companies were potential candidates for GAIN Capital’s purchasing initiative, Mr. Stevens answered with a resounding yes. “Identifying a need, a strategic objective is essential when looking into entering a new sphere” considers Mr. Stevens. “Is there a willing participant? Is there a company under distress? It could have been a different company which had a similar corporate synergy and several different options were available. Once all the matters have been considered and a brand decided on, we then get into negotiating, and are really in deal mode. At that point, we have to be certain that the company has the right skill set to carry it through. Lots of people talk about deals, but do not know how to close them. Some are not and therefore not effective.”
Sealing The Deal Leads to Future Consolidation
Mr. Stevens is highly experienced in the process which acquiring large, established companies and therefore iterated to LeapRate that in order to be in the right buying position “you have to be able to get your own cash, public stock, and management team aligned. Then the company which does the purchasing has to do integration. What is good about both firms in this case is that they are equitable and therefore we will be integrating them together.”
“As far as technology and liquidity is concerned, we may take City Index into new sectors, including B2B technology and liquidity provision” was a very interesting revelation from Mr. Stevens. Indeed, should this be the case, GAIN Capital will have a very strong method of competing with London’s liquidity and broker solutions providers such as LMAX and Sucden Financial in attracting brokerages from all over the world to use their order flow and technology.
On this perspective, Mr. Stevens considers that “GAIN Capital already has a very robust ECN, and a strong institutional business, whereas City Index in its independent state was a bit more narrowly focused on having a direct retail brand. On this basis, GAIN Capital has brought a partner business and a direct retail brand, therefore the City Index deal will bolster retail presence but also provide customer solutions – and by that I mean all manner of customer solutions from broker provisioning to liquidity.”
“In terms of its retail product offering, GAIN Capital will take the CFD market to a broader audience. This is more globally viable than spread betting which is intrinsically British. Certainly in Europe and Asia, CFDs are a great way for this business to expand beyond the UK. We see that the proprietary CFD platform, along with the comfort that the market shows with CFDs in general, City Index’s experience here is great. We can leverage it globally, and it does not have to be leveraged by the brand, or the platform, indeed it might be both” enthused Mr. Stevens.
“City Index has developed a strong following, a mindset” stated Mr. Stevens. “GAIN Capital’s Forex Trader Pro platform is a Forex focused offering. This does not mean that it can not handle CFD but it does not have that orientation. With the ownership of a full CFD orientated platform and ecosystem, we do see the ability to expand” he revealed.
With regard to whether GAIN Capital will completely rebrand City Index and make it part of the GAIN Capital name, Mr. Stevens explained that “Although we actually only hit the start button last Friday, we are already up and running. There has been no animosity, no infighting, no contretemps with the senior management. Indeed, on the contrary. GAIN Capital is including several key people from City Index, we are not asset strippers.”
The discussion moved to what lies in store for the immediate future for encumbent City Index CEO Mark Preston. “Mark’s role is certainly for the transitionary period at a minimum” explained Mr. Stevens. “He has been very professional, understands his responsibility with regard to both City and of IPGL Holdings. Mark comes out of Michael’s ecosystem, therefore he has the responsibility of being a good steward of Michael’s investment and brings senior leadership from previous experience. Michael wants this to work because of the equity portion that is involved. Our agreement is that long-term we won’t run City Index as a seperate company, Mark’s role will be to maintain and smooth the transition.”
“We may move toward total GAIN Capital branding in some cases, however certain brands do well in certain niches and regions. For example, there is the iFX brand in Asia. That is a City Index brand which does well. Where things make sense, why not leave that?” is Mr. Stevens’s perspective. “I would argue that GAIN Capital does not have a spread betting brand, therefore we will do the research and find out what makes sense from a brand, product, and platform perspective.”
“Michael Spencer, whose company IPGL owned City Index pre-GAIN Capital acquisition, is in an equity and lending position” said Mr. Stevens. “He said he wants to make this work. Michael has to care. He is able to leave his stamp on the organization and ensure that those responsible can really make this work.”
“This started with the concept of what do we need to strengthen – a UK CFD presence with a big brand is compliment to what already had” he said.
Mr. Stevens provided a sound example of a prior transaction that has borne fruit “If you look back a bit Andrew, when we bought the GFT business” he explained, “we can see that there is a vast benefit in having a series of direct sales organizations which resell their platforms. This took two years to put together, but it is now profitable and gives us a greater presence. Now, looking at more recent matters, diversification of product and service following the recent period of low volatility provides more opportunities to smooth out the earnings.”
In conclusion, Mr. Stevens happily detailed that he views GAIN Capital as a truly global enterprise. “I don’t consider us a US company” he stated. “We are listed in the US and have several senior executives here, but our presence in the UK after buying GFT is already substantial, and we have the regulatory licenses and establishment there. Less than 35% of our volumes come from US, therefore with the US retail market playing second fiddle to the British or Asian market, we have been furthering our reach and diversified product range to take a global stance. I will say that being able to cut our teeth on the US market has enabled us to survive well, we grew up in that neighborhood so able to sustain us” concluded Mr. Stevens.