FXCM's IPO price over $1 billion

FXCM has finally put a price tag on itself and it’s over $1 billion if the IPO is successful. In

FXCM has finally put a price tag on itself and it’s over $1 billion if the IPO is successful. In its new S1 docs FXCM announced that it is selling 15,060,000 shares for the estimated price of $13 to $15 per share. After the offering FXCM’s current owners will hold 60,240,000 shares (if the underwriters won’t exercise their green shoe option worth 2,257,000 shares).

Calculating the value here is easy – (15,060,000+60,240,000) * $14 = $1,054,200,000, post money, if the pricing is set on average $14 per share. My previous estimate was $676 million pre-money in pre-IPO value based on the ODL deal terms. FXCM is hoping to raise about $200 million in this IPO. The money will be used to pay some existing shareholders (by buying FXCM’s various holdings from them) and to drive expansion.

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It is not uncommon for companies going public to price the IPO higher than its value during previous deals as a private company. When FXCM accquired ODL it priced itself at $676 million whereas now it prices itself as ~$854 million (post money value minus newly raised capital). However investors should ask themselves whether the six months that passed since ODL’s acquisition are really worth $180 million more. I do aknowledge that there is a certain premium for a public company which is reflected in this price gap.

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One interesting thing that does stand out in the S1 document is this:

Investors in this offering will suffer immediate and substantial dilution. The initial public offering price per share of Class A common stock will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share of Class A common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your shares of Class A common stock than the amounts paid for the Holdings Units by our existing owners. Assuming an offering price of $14.00 per share of Class A common stock, which is the midpoint of the range on the front cover of this prospectus, you will incur immediate and substantial dilution in an amount of $11.83 per share of Class A common stock. See “Dilution”.

Based on this, if I were a value investor I’d stay away from this company during the first few months since the IPO. However knowing how many people are interesting in investing in the first US forex broker going public I’m sure people won’t mind the petty details and will invest in the company whatever the price is.

Read Yohay’s thoughts on this topic here.

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