Opinion: Did IG Get a Good Deal on DailyFX?
IG has filled an important hole in its marketing strategy in one move, but did it pay too much?
British broker IG Group recently bought DailyFX from FXCM.
DailyFX for years had been a stable generator of business for FXCM, and it is fair to say that it wouldn’t have considered selling the site if it wasn’t for the debt burden FXCM has due to the SNB issue and the resulting Leucadia deal.
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IG paid $40 million for the site while FXCM continues to get advertising space targeting North American audiences. Bear with me while I work through some of the numbers to arrive at an estimated fair value for the publishing operation.
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With 4.2 million unique monthly visitors and the cost of generating this type of traffic 0.25 USD per visitor at most, the value of this traffic without anything else considered is estimated in the range of 12.6 millionUSD per year. The business value to IG is less. Since traffic to a publisher is not worth anything without activating it for the broker, we could give a conservative estimate of 2% conversion from DailyFX to IG, minus the conversions from North America which FXCM keeps, we would get around 63,000 conversions.
If we estimate the value of those leads to be at 50 USD a piece, the immediate value to the business comes to 3.15 million USD per year. Add to that ‘brand awareness’, added value to IG customer base and ‘SEO’ value, and 7.5 million in value per year isn’t unreasonable. So we can say, from 7.5 million to 12.6 million is fair yearly value, at an industry average multiple of 3 times that comes to between 22.5-37.8 million in estimated price. While IG undoubtedly has had access to better data then the guestimates above, based on the information available it seems that it paid above market for the asset.
The other question to ask is, could IG have started a successful operation itself for 40 million USD? The answer is a resounding yes, with the caveat that it could be a risk (question is always if the strategy works or not) and it would surely take a lot of time. I think we will all see that it would have been possible for IG when FXCM gets on its feet and starts a competitor to DailyFX. My guess is that it will get back to the traffic levels currently enjoyed by DailyFX within 2-3 years.
So in summary, in my opinion it is likely that IG paid at the top end of the range. Good for FXCM. However, this move does show the importance smart brokers place on operating publishing operations. There are many reasons why brokers should consider such strategies and I have discussed them at length in the past.
With this acquisition, IG has filled an important hole in its marketing strategy in one move, which is commendable in itself.
I would like to know if FXCM must share the US leads with IG’s US entity, Nadex.
Good question but brokers typically dont share leads int he way that two parties would get them. So I think safe to so they wont.
For $40M, maybe FXCM is required to share US leads with Nadex which would make the cost of DailyFX more palatable for IG. I wish IG would publish the Nadex specific business metrics in their annual report just for issues such as this. Unfortunately, that will never happen.
99% sure that is not the case. The deal is that FXCM advertises to North America, so if FXCM advertises it would be very strange if those people got a call from Nadex too…