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GAIN Capital Responds to FXCM Bid By Making an Offer for GFT

by Ron Finberg
    GAIN Capital Responds to FXCM Bid By Making an Offer for GFT
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    GAIN Capital’s board has just pulled a rabbit out of the hat as it has simultaneously formally rejected FXCM’s unsolicited offer and announced their intention to acquire rival broker GFT. GAIN Capital has recently had close ties with GFT as it acquired the firm’s US customer base when they exited the country last year.

    Unlike FXCM’s hostile bid, the current GAIN/GFT hookup is based on the signing of a definitive agreement between the two firms. The purchase price is “approximately $107.8 million, which, including $80 million of GFT cash at closing, results in a net purchase price of $27.8 million”. GAIN added that “the purchase price will be paid with $40 million in cash, a five-year $40 million seller note and the issuance of approximately 4.9 million shares of GAIN common stock.” The deal is expected to close in Q3 2013. After the merger, GAIN stated that the two firms “will initially retain their separate brand identities, while benefitting from significant synergies and capabilities across their complementary businesses”. In addition, GFT CEO Gary Tilkin is expected to hold a 12% equity interest of the combined firms, and will become a GAIN Board member.

    GFT CEO, Gary Tilkin

    GFT CEO, Gary Tilkin

    To learn more about GFT's side of the deal, GFT CEO Gary Tilkin answered a few questions to Forex Magnates.

    Will you continue to have involvement in day to day activities of the combined units, or is this a means of exit?

    Yes, until the deal closes I'll continue to run GFT as I have in the past with obvious consultation and coordination with Gain's top management. Over time I'll focus on the higher level issues as a board member and drop all day to day management responsibilities.

    With recent consolidation talk taking place, was GFT approached by other firms to be either acquired or the acquirer?

    Over the years GFT has been approached by many in the private equity and venture capital business as well as business brokers and bankers with a variety of ideas. This deal just made the most sense as a combination and it came along at the right time for me to Leverage the revenue and cost synergies we could achieve as a combined group.

    Explaining the benefits of the merger, GAIN stated:

    • Transformative acquisition provides significant scale along with revenue and product diversification
    • Combined 2013 revenue run-rate of $329 million and pro forma EBITDA run-rate of $77 million based on Q1 2013 results
    • Pro forma client assets of approximately $650 million and funded accounts of 139,710 as of March 31, 2013
    • Estimated first year operating synergies of $35-$45 million
    • Accretive in the first full quarter following closing

    With the GFT acquisition announced, eyes now move towards GAIN's stock price. Shares of GAIN moved higher by more than 25% following FXCM's hostile bid to yesterday's closing price of $5.62. As such, a drop back towards the pre-FXCM bid of below $4.50 could lead to shareholder pressure, as key holders demand a higher price for their shares.

    Positive Q1 Results

    In addition to the merger announcement, GAIN pre-announced its Q1 earnings

    GAIN Capital reported that its net revenues for the first quarter ended March 31, 2013 reached $49.8 million, an increase of 50% over last year’s first quarter. EBITDA for the period was $7.5 million, up from $1.3 million in the first quarter 2012, and net income was $4.3 million, or $0.11 per diluted share, compared to a loss of $1.3 million, or $0.04 per diluted share, in the first quarter of 2012. GAIN’s client assets increased to $456.9 million, up from $446.3 as of December 31, 2012. Full financial results for the period, as well as operating metrics for the month of April will be released after the close of the market on Tuesday May 7, 2013.
    GFTLogo_109x35_UK

    GAIN Capital’s board has just pulled a rabbit out of the hat as it has simultaneously formally rejected FXCM’s unsolicited offer and announced their intention to acquire rival broker GFT. GAIN Capital has recently had close ties with GFT as it acquired the firm’s US customer base when they exited the country last year.

    Unlike FXCM’s hostile bid, the current GAIN/GFT hookup is based on the signing of a definitive agreement between the two firms. The purchase price is “approximately $107.8 million, which, including $80 million of GFT cash at closing, results in a net purchase price of $27.8 million”. GAIN added that “the purchase price will be paid with $40 million in cash, a five-year $40 million seller note and the issuance of approximately 4.9 million shares of GAIN common stock.” The deal is expected to close in Q3 2013. After the merger, GAIN stated that the two firms “will initially retain their separate brand identities, while benefitting from significant synergies and capabilities across their complementary businesses”. In addition, GFT CEO Gary Tilkin is expected to hold a 12% equity interest of the combined firms, and will become a GAIN Board member.

    GFT CEO, Gary Tilkin

    GFT CEO, Gary Tilkin

    To learn more about GFT's side of the deal, GFT CEO Gary Tilkin answered a few questions to Forex Magnates.

    Will you continue to have involvement in day to day activities of the combined units, or is this a means of exit?

    Yes, until the deal closes I'll continue to run GFT as I have in the past with obvious consultation and coordination with Gain's top management. Over time I'll focus on the higher level issues as a board member and drop all day to day management responsibilities.

    With recent consolidation talk taking place, was GFT approached by other firms to be either acquired or the acquirer?

    Over the years GFT has been approached by many in the private equity and venture capital business as well as business brokers and bankers with a variety of ideas. This deal just made the most sense as a combination and it came along at the right time for me to Leverage the revenue and cost synergies we could achieve as a combined group.

    Explaining the benefits of the merger, GAIN stated:

    • Transformative acquisition provides significant scale along with revenue and product diversification
    • Combined 2013 revenue run-rate of $329 million and pro forma EBITDA run-rate of $77 million based on Q1 2013 results
    • Pro forma client assets of approximately $650 million and funded accounts of 139,710 as of March 31, 2013
    • Estimated first year operating synergies of $35-$45 million
    • Accretive in the first full quarter following closing

    With the GFT acquisition announced, eyes now move towards GAIN's stock price. Shares of GAIN moved higher by more than 25% following FXCM's hostile bid to yesterday's closing price of $5.62. As such, a drop back towards the pre-FXCM bid of below $4.50 could lead to shareholder pressure, as key holders demand a higher price for their shares.

    Positive Q1 Results

    In addition to the merger announcement, GAIN pre-announced its Q1 earnings

    GAIN Capital reported that its net revenues for the first quarter ended March 31, 2013 reached $49.8 million, an increase of 50% over last year’s first quarter. EBITDA for the period was $7.5 million, up from $1.3 million in the first quarter 2012, and net income was $4.3 million, or $0.11 per diluted share, compared to a loss of $1.3 million, or $0.04 per diluted share, in the first quarter of 2012. GAIN’s client assets increased to $456.9 million, up from $446.3 as of December 31, 2012. Full financial results for the period, as well as operating metrics for the month of April will be released after the close of the market on Tuesday May 7, 2013.
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