TechFinancials IPO finalized, all the prospectus details – LeapRate Exclusive

LeapRate Exclusive… LeapRate has learned that binary options platform provider (and OptionFair operator) TechFinancials has finalized the details of its Initial Public Offering on the London Stock Exchange’s AIM market. The underwriters for the offering closed the book yesterday, and will be sending out placing letters in the coming hours to those who placed orders for TechFinancials stock.

The shares should begin trading on AIM either later this week or early next.

So how much money did TechFinancials raise?

Well, not as much as they had hoped. In its initial marketing materials, TechFinancials indicated it had hoped to raise up to $10 million. In the end, the order book came in at just more than half that, or $5.25 million raised, at a $25 million (pre-IPO) valuation for TechFinancials.

Financially, TechFinancials is still more binary options broker than technology provider. In the first half of 2014 (the last period which TechFinancials broke out in the prospectus), TechFinancials did just over $7 million in Revenue – $3M from its platform business, and more than $4M from operating its own CySEC-regulated OptionFair binary brand.

TechFinancials revenue

As far as strategy and use of proceeds, TechFinancials listed:

  • OptionFair will enter new regulated markets, including the US and Japan.
  • Plans to launch in 2015 a pricing engine for fixed strike Binary Options for US regulated exchanges, and a fixed strike Binary Options trading platform with supporting IT systems for retail brokers planning to operate in Japan.
  • Plans to launch a simplified Forex trading platform, currently in beta version, with the final product expected to go live later in 2015. TechFinancials’ strategy is to add further trading instruments, starting with CFDs, also later in 2015.
  • Plans to expand its product offering further, including development of a multi-asset platform which will combine a range of trading instruments onto one trading platform.
  • Opening a China office – In 2014 TechFinancials secured its first online broker customer in China which it currently services from its offices in Israel. The Group intends to open an office in China in 2015 to sell and support TechFinancials’ software in that market. TechFinancials already established a sales office in Tokyo in early 2014.

Some summary financial information:

We understand that TechFinancials did between $8.5-$9.0 million in Revenue in the second half of 2014 – about a 20% rise over 1H-2014 – making 2014 full year revenues about $16 million, nearly double 2013.

Growth at TechFinancials hasn’t come without some speed bumps. 2013 was actually a down year, with revenues off 6% from 2012. And despite the growth, the business (until 1H-2014 at least) has not been very profitable. Despite Gross Margins in the 60-70% range (62% in 1H-2014), Net Profit came in at a $315,000 loss for 2013, and just a $266,000 gain in the first half of 2014.

The IPO was marketed based on a multiple of under 8x 2015 earnings – meaning that the underwriters were hinting that TechFinancials was going to be profitable in 2015, to the tune of about $3.5-$4.0 million Net Profit. Obviously, a major (forecast) improvement over previous years.

24optionTechFinancials’ largest platform client is 24option. We understand that 24option represents about 30% of TechFinancials’ platform revenues, although that percentage has been dropping as TechFinancials has been successful in signing up more new clients over the past year, especially in the Far East region. (In its prospectus TechFinancials just states that it derives a ‘substantial proportion of its revenues’ from 24option).

TechFinancials reports it now has about 50 active brands running its software, with monthly volumes of about $150 million on more than 2 million monthly trades across the network. Roughly half of the 2 million monthly trades originate from clients in Asia.

Interestingly, TechFinancials points out that 24option has developed its own high/low Binary Option software, and that as a result it might lose 24option as a customer at some point.

TechFinancials’ ownership (pre-IPO) is actually fairly evenly split among its four co-founders Asaf Lahav, Eyal Rosenblum, Eyal Alon and Jeremy Lange (who are each still involved in running the company as per below), as well as some other outside investors:

  • Eyal Alon – heads the Forex operations – 16.87%
  • Asaf Lahav – CEO, runs platform business – 15.42%
  • Danny Magen – outside consultant – 13.11%
  • Jeremy Lange – COO, runs Cyprus office – 12.40%
  • Eyal Rosenblum – CMO – 9.11%
  • Equilibrium Solutions Ltd – 7.35%
  • Fidelity Venture Capital Ltd – 6.00%
  • Evian Investment Limited – 5.35%
  • Daonit Ltd – 3.56%
  • Gigi Levy – 3.28%

All the major (3%+) shareholders have agreed to a one-year hard lock-up of their shares. We understand that outside consultant Danny Magen may have sold part (about 25%) of his holdings in the IPO, but the remainder of his stake will remain locked up as well.

TechFinancials brought on board gaming industry veteran Chris Bell as Chairman of the Board prior to the IPO (he joined in November). Bell was previously CEO of Ladbrokes plc.

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