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Less than a week ago, on September 10, 2014, FXCM’s CEO Drew Niv delivered a presentation at the annual Barclays Global Financial Services Conference, with his participation in the event drawing significant attention given the latest series of business purchases announced by the retail FX giant. While some might have expected that Mr. Niv would announce the end of the mergers and acquisitions drive by the company, as the presentation was made only five days after the announcement of the acquisition of IBFX’s MT4 accounts in the US and Australia, the tone of the presentation was exactly the opposite. Indeed, FXCM “remains optimistic on acquisitions in 2014” and plans more deals.
To begin with, it is worthy of note that the delegates which attended the conference were addressed first hand by what has become a seemingly relentless enthusiasm from within FXCM in terms of mergers and acquisitions, at least this was shown by their response to a question about their view on the broker’s future plans regarding such deals. The majority of respondents, amounting to 57% , said they expect the broker to pursue multiple small acquisitions/retail accounts.
The response was not surprising given the most recent moves by FXCM. In May this year the company acquired the retail FX accounts of FXDD in the US, with the purchase of IBFX’s MT4 accounts in the US and Australia announced in the early days of September 2014, both of which represented high value, high profile transactions. The company has also sought to acquire niche firms which give FXCM access to specialist services, as demonstrated by last year’s purchase of Faros Trading.
Commenting on the result of the survey, Mr. Niv noted that many of these deals are natural, with “brokers shutting down jurisdictions and getting out of FX regulations”. Small companies are obvious targets for FXCM, with Mr. Niv explaining that “even if volatility rises sustainably, regulation will still put them out of business”.
FXCM’s CEO concedes that the negotiations for acquisitions “will be harder from the price perspective, with volatility coming back in the next few months”. Moreover, he added “The bigger the company, the more its ability to hang on”.
Mr. Niv’s concluding commentary was particularly interesting as it suggested that FXCM might be looking to catch a bigger fish in the Forex sea, something the broker hinted at during the conference call on its results for the third quarter of 2013. At that juncture, Mr. Niv said the broker was planning a big deal in the retail FX sector which was set to happen not later than June 2014.
We can hardly suppose that the acquisition of FXDD’s or IBFX’s accounts amounts to a big deal for FXCM, especially bearing in mind that Mr. Niv defined the deals with Alpari US, Infinium Capital and Faros Trading as small ones.
All things considered, FXCM is sitting on a huge pile of funds that can be used for acquisitions. At the end of the third quarter of 2013, when FXCM said it was accelerating its purchasing efforts, the broker had $638 million in shareholder equity, its own cash equalled $421.9 million, whereas it also had a credit facility of $155 million. In the light of this numbers, the $4.4 million purchase of FXDD’s US business is vaguely a big deal. The tempting idea that lingers is that FXCM may actually be in talks with a big business and that we may see a company with an “ability to hang on” surrender to FXCM’s empire.
You can listen to the Conference webcast by clicking here.