This article was written by Claudiu Ghebaru, Head of Business Development - EMEA & APAC at Trade.com.
General overview
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We have been learning about the companies coming together and companies taking over existing companies to expand their business in all industries: tech, aviation, transportation, banking, auto, communication and so on.
Generally speaking, there are many reasons why mergers and acquisitions happen: to acquire talent and clients, to shut down a rising competitor, to gain access and ownership to licenses, equipment, technologies, etc, and at the very least, it is great fodder for the media.
During the firsts 9 months of 2015, companies announced no less than $3.4 trillion worth of mergers and acquisitions around the world. While by year-end 2016, predictions are that global M&A will hit $4.70 trillion, beating the full year-record set in 2015.
A few of the most famous and expensive M&As
Within the last several years, it is absolutely impossible to look at an area where big mergers and acquisitions didn't happen. Let’s make a short recap to see the figures behind some M&As and the reasons behind them.
- September 2013: Verizon acquired Vodafone's 45% participation in Verizon Wireless for no less than $130 billion. The deal gave Verizon the security and the financial strengths to up the investment in infrastructure and increased its competitiveness in the US markets.
- Mid-2011: Microsoft bought Skype for $8.5 billion. It wanted to make a big move into the IP communications for its huge audience and Skype's peer-to-peer video chat.
- October 2014: Whatsapp is purchased by Facebook for $19 billion. With 55 employees at that time only, 450 million users and still mind boggling growth forecasts (which have been reached; Whatsapp has more than 1 billion users now), Facebook’s will to keep the crown of the "king of messages" was achieved.
- Glaxo SmithKline, the British pharmaceutical behemoth, was born from the merging of SmithKline Beecham PLC and Glaxo Welcome PLC. The value of the merger- $76 billion. The actual market capitalization: $294 billion. The main reason which stood behind this merger was the reduction of huge costs for developing new drugs.
- In 1999, the world’s biggest oil company, Exxon, announced a merger with its rival, the world’s second-biggest oil company, Mobil. The value of the merger was $79 billion, while the up-to-date market capitalization is $387 billion. The move was part of a wave of mergers and acquisitions in the oil industry as it battled falling oil prices.
Perspective on the FX industry: 4 major facts which may change the industry
Back to the present day, the entire FX industry faces new challenges which mainly affect its core mission: to facilitate online trading while still offering a high standard of services, maintaining a reliable business model and a sustainable return of investment for the shareholders.
- The new MiFID 2 requirements: more comprehensive transaction reports, extensive reports and disclosure requirements for a higher transparency, plus the creation of a new regulated platform OTF (Organized Trading Facility) - will definitely create an even-higher demand for compliance, employees and tools for each single FX company.
- The new CySEC
CySEC
The Cyprus Securities and Exchange Commission (CySEC) is a financial regulatory authority of Cyprus. CySEC is one of the key watchdog authorities for brokerages in Europe, whose financial regulations and operations comply with the European MiFID financial harmonization law.Founded in 2001, CySEC is instrumental in providing licensing and registration for forex brokers and previously binary options providers.CySEC is responsible for a variety of different functions, which includes the supervision
The Cyprus Securities and Exchange Commission (CySEC) is a financial regulatory authority of Cyprus. CySEC is one of the key watchdog authorities for brokerages in Europe, whose financial regulations and operations comply with the European MiFID financial harmonization law.Founded in 2001, CySEC is instrumental in providing licensing and registration for forex brokers and previously binary options providers.CySEC is responsible for a variety of different functions, which includes the supervision
Read this Term guidelines regarding sales: high-pressure sales techniques will become a myth. Brokers’ sales staff will be able to provide information only about the services, technology, trading Liquidity
Liquidity
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent
Read this Term, types of instruments or the risks associated with trading. This has already led during the last few weeks to massive lay-offs in the sales departments of some top FX and binary options companies.
- CySEC statement regarding remuneration policies and practices.
Within the last month, CySEC stated that some types of remuneration create a conflict of interest with the clients, which is not in line with its business rules. These include remuneration as a percentage of the total volume of transaction, the value of transactions, value of clients’ deposits, remuneration based on retention or as percentage of the net revenue (clients’ P&L).
- Huge pressure on the marketing budgets
The FX industry has faced over the last 2-3 years an unparalleled level of competition. First of all because FX companies are competing against themselves in this ring, and second because the FX-only companies are running a different, harsh battle for client funds with the binary options providers. While the profile of clients is slightly different and they have a completely different lifetime value, this high level of competition has led year-by-year to new peaks of CPL and CPA costs, which threatens the sustainability of the business itself.
Conclusion:
As history shows us, behind any merger or an acquisition may stand a variety of reasons. From strategic expansion plans to long-term-future forecasts, all companies are willing to consolidate their business and increase market share and revenues.
All these reasons made sense in the past and can be easily found among the companies involved in the FX field as well. These firms face pressure regarding operational costs, marketing expenses, technology challenges, shareholders’ expectations and ever more restrictive regulations.
So, what keeps FX companies away from M&As?
This article was written by Claudiu Ghebaru, Head of Business Development - EMEA & APAC at Trade.com.
General overview
[gptAdvertisement]
We have been learning about the companies coming together and companies taking over existing companies to expand their business in all industries: tech, aviation, transportation, banking, auto, communication and so on.
Generally speaking, there are many reasons why mergers and acquisitions happen: to acquire talent and clients, to shut down a rising competitor, to gain access and ownership to licenses, equipment, technologies, etc, and at the very least, it is great fodder for the media.
During the firsts 9 months of 2015, companies announced no less than $3.4 trillion worth of mergers and acquisitions around the world. While by year-end 2016, predictions are that global M&A will hit $4.70 trillion, beating the full year-record set in 2015.
A few of the most famous and expensive M&As
Within the last several years, it is absolutely impossible to look at an area where big mergers and acquisitions didn't happen. Let’s make a short recap to see the figures behind some M&As and the reasons behind them.
- September 2013: Verizon acquired Vodafone's 45% participation in Verizon Wireless for no less than $130 billion. The deal gave Verizon the security and the financial strengths to up the investment in infrastructure and increased its competitiveness in the US markets.
- Mid-2011: Microsoft bought Skype for $8.5 billion. It wanted to make a big move into the IP communications for its huge audience and Skype's peer-to-peer video chat.
- October 2014: Whatsapp is purchased by Facebook for $19 billion. With 55 employees at that time only, 450 million users and still mind boggling growth forecasts (which have been reached; Whatsapp has more than 1 billion users now), Facebook’s will to keep the crown of the "king of messages" was achieved.
- Glaxo SmithKline, the British pharmaceutical behemoth, was born from the merging of SmithKline Beecham PLC and Glaxo Welcome PLC. The value of the merger- $76 billion. The actual market capitalization: $294 billion. The main reason which stood behind this merger was the reduction of huge costs for developing new drugs.
- In 1999, the world’s biggest oil company, Exxon, announced a merger with its rival, the world’s second-biggest oil company, Mobil. The value of the merger was $79 billion, while the up-to-date market capitalization is $387 billion. The move was part of a wave of mergers and acquisitions in the oil industry as it battled falling oil prices.
Perspective on the FX industry: 4 major facts which may change the industry
Back to the present day, the entire FX industry faces new challenges which mainly affect its core mission: to facilitate online trading while still offering a high standard of services, maintaining a reliable business model and a sustainable return of investment for the shareholders.
- The new MiFID 2 requirements: more comprehensive transaction reports, extensive reports and disclosure requirements for a higher transparency, plus the creation of a new regulated platform OTF (Organized Trading Facility) - will definitely create an even-higher demand for compliance, employees and tools for each single FX company.
- The new CySEC
CySEC
The Cyprus Securities and Exchange Commission (CySEC) is a financial regulatory authority of Cyprus. CySEC is one of the key watchdog authorities for brokerages in Europe, whose financial regulations and operations comply with the European MiFID financial harmonization law.Founded in 2001, CySEC is instrumental in providing licensing and registration for forex brokers and previously binary options providers.CySEC is responsible for a variety of different functions, which includes the supervision
The Cyprus Securities and Exchange Commission (CySEC) is a financial regulatory authority of Cyprus. CySEC is one of the key watchdog authorities for brokerages in Europe, whose financial regulations and operations comply with the European MiFID financial harmonization law.Founded in 2001, CySEC is instrumental in providing licensing and registration for forex brokers and previously binary options providers.CySEC is responsible for a variety of different functions, which includes the supervision
Read this Term guidelines regarding sales: high-pressure sales techniques will become a myth. Brokers’ sales staff will be able to provide information only about the services, technology, trading Liquidity
Liquidity
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent
Read this Term, types of instruments or the risks associated with trading. This has already led during the last few weeks to massive lay-offs in the sales departments of some top FX and binary options companies.
- CySEC statement regarding remuneration policies and practices.
Within the last month, CySEC stated that some types of remuneration create a conflict of interest with the clients, which is not in line with its business rules. These include remuneration as a percentage of the total volume of transaction, the value of transactions, value of clients’ deposits, remuneration based on retention or as percentage of the net revenue (clients’ P&L).
- Huge pressure on the marketing budgets
The FX industry has faced over the last 2-3 years an unparalleled level of competition. First of all because FX companies are competing against themselves in this ring, and second because the FX-only companies are running a different, harsh battle for client funds with the binary options providers. While the profile of clients is slightly different and they have a completely different lifetime value, this high level of competition has led year-by-year to new peaks of CPL and CPA costs, which threatens the sustainability of the business itself.
Conclusion:
As history shows us, behind any merger or an acquisition may stand a variety of reasons. From strategic expansion plans to long-term-future forecasts, all companies are willing to consolidate their business and increase market share and revenues.
All these reasons made sense in the past and can be easily found among the companies involved in the FX field as well. These firms face pressure regarding operational costs, marketing expenses, technology challenges, shareholders’ expectations and ever more restrictive regulations.
So, what keeps FX companies away from M&As?
