Gain Capital buys GFT, rejecting FXCM takeover

Emboldened by much better Q1 results, Gain Capital ( is going it alone.

Well, it seems as if the letter written to the Gain Capital Board by shareholder Springhouse Capital — warning Gain not to make any acquisitions or do anything else to ward off a takeover of Gain — wasn’t written in a vacuum. Clearly, the Springwater people knew what was up behind the scenes — and their attempts to embarrass Gain CEO Glenn Stevens into selling the company (by implying that he is overpaid at $2M per year, and has a vested interest to keep himself in the CEO seat) have not worked.

Gain has issued a “triple-play’ press release stating that:

  1. Gain has agreed to buy competitor GFT for about $28 million in combined cash and stock. Recall that in December Gain acquired GFT’s US clients for — as we exclusively reported — nothing upfront.
  2. Gain’s Q1 results were much improved — Revenues came in at $49.8 million, up about 50% from both Q4 and Q1 last year; EBITDA was $7.5 million versus an EBITDA loss of $5 million in Q4; and net income was $4.3 million.
  3. Gain was formally rejecting the FXCM takeover bid, stating that it would would “significantly undervalue the Company and its prospects.”

In our view, this is probably not the last word in the acquisition battle for Gain. We expect one of two things to happen now. Either:

  • FXCM will simply withdraw its bid, and go on its merry way; or
  • FXCM, as well as various Gain shareholders (such as Springhouse) who prefer the company to be sold, will take legal action to prevent the Gain-GFT deal, and force the Gain Board to “maximize value” by selling the company.

Some interesting tidbits of information from the deal include:

  • GFT founder and owner Gary Tilkin will end up owning about 12% of Gain Capital.
  • GFT, it turns out, has about $193 million of client assets.
  • GFT’s run-rate Revenue is about $130 million annually (meaning they did about $32 million in Revenue in Q1), but they are not very profitable, doing about $1.8 million in EBITDA during Q1.

For the Gain Capital press release announcing the GFT acquisition and preliminary Q1 results click here.

For the Gain Capital press release rejecting the FXCM takeover click here.

Stay tuned to LeapRate. Should be an interesting ride…

For more on Forex industry M&A and financings, including M&A valuation comps and a deal list dating back to 2005, see the LeapRate-Dow Jones Forex Industry Report.

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