FXall IPO now to be entirely selling shareholders

Forex ECN FXall (or formally, FX Alliance Inc.) today refreshed its registration statement / prospectus with the U.S. Securities and Exchange Commission (or “SEC”), in preparation for going public.

So what has changed from the previous document, filed in late December? Apparently FXall has changed its mind, and now does not plan to receive any of the proceeds from the offering. As now reconstituted, the IPO will consist entirely of selling shareholders. FXall’s major shareholders include venture capital firm TCV (Technology Crossover Ventures) with a 28% stake, CEO Philip Weisberg with 7%, and a group of banks each holding 5% including BofA, BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, Goldman Sachs, HSBC, Morgan Stanley, and The Royal Bank of Scotland.

In addition to the change to an all “secondary” offering, FXall reported that it had decreased trading volumes during Q4 (without giving specifics) – in line with what we reported that we have seen at other Forex ECNs such as ICAP and Hotspot, as well as some of the larger retail FX firms such as FXCM and FxPro. Not an easy time to go public as a Forex ECN.

The key question which any potential investor in the IPO ought to ask is: Why the change? Why did FXall change its mind and decide that it doesn’t need any more cash? On the contrary, FXall also reported that it now plans a $63 million dividend to its current shareholders prior to the IPO, out of its current (@ Sept 30, 2011) cash balance of $117 million. Often, IPO investors prefer to see a company which needs cash (that is why they are investing their money, after all), in order to continue to grow. Companies which generate cash are nice of course, but without a good growth story are unlikely to be valued at a premium multiple of revenues or earnings.

This “selling-shareholders-only” structure is also somewhat atypical of an IPO of this type, in that the new institutional and retail investors in the newly-public company typically like to see the “insiders” keep all (or most of) their shares, so that all are committed to the company, and are all “in the same boat” together as the company’s stock begins trading. Insiders and management typically agree to a 180-day “lock up” period after the IPO, before selling any shares.

No more information on when the offering is expected to come. Stay tuned….

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