FXCM positions itself strongly to pursue acquisitions, raising nearly $50M more than planned following strong demand for its notes.
Leading FX broker FXCM, a member of LeapRate’s Approved List, has increased the size of its initial note offering from a planned $125 million to $172.5 million, following strong demand from institutional investors for the offering.
FXCM’s five-year notes were priced to pay a 2.25% yield to investors, and are convertible into FXCM stock at a price of $18.76 per share — meaning that FXCM’s share price would need to rise by more than 32% between now and 2018, before investors would have any reason to convert their notes into FXCM shares. FXCM will receive the proceeds of the offering later today (June 3).
As we wrote last week when FXCM announced the planned financing, why exactly is FXCM raising so much money? As of the end of Q1 (March 31), FXCM reported cash of about $125 million, and had long term debt of just over $100 million — $80 million in a bank credit facility FXCM expanded soon after its 2012 acquisition of Lucid, plus $23 million in notes payable. So why would so liquid a company such as FXCM raise more money?
The answer is, in one word, acquisitions. It goes something like this. FXCM plans to use some of the proceeds of the note issue to pay down the $80 million bank credit facility. With medium and long term interest rates at or near all-time lows, it makes a lot of sense for FXCM to “term out” its debt, guaranteeing a low interest expense on its debt whether or not interest rates rise over the next five years.
And doing so will once again free up FXCM’s bank facility. If FXCM were to identify an acquisition target or situation and want to move quickly, it will now have all that ‘dry powder’ ready to go. In FXCM’s recent takeover attempt of Gain Capital, in which FXCM offered an all-stock deal, FXCM’s lack of room in its facility tied its hands in being able to up the cash amount of its offer, at least on very short notice. Now, that shouldn’t be a problem as FXCM looks at other potential targets.
We do expect there to be more deals in FXCM’s future, as the Forex industry continues to mature and consolidate.
For the FXCM press release announcing the notes offering click here.
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.