Following up on the news earlier in the day that Betfair was selling 67% of LMAX to management for £2.4 million, Forex Magnates spoke to LMAX Exchange CEO David Mercer for more information on the deal. The big question we had was how the overall valuation of £3.6 million for the company was calculated, being that Goldman Sachs had sold its 12.5% stake to Betfair in March for a reported $10 million? Mercer explained that the two deals were separate, and the Tradefair operation that was previously part of the LMAX unit wasn’t included in the current management buyout.
In its press release, LMAX Exchange indicated that “It has consistently outperformed its growth targets, delivering over 20% monthly growth in trading volumes, revenues and client numbers since October 2011.” Mercer explained that this was compounded month over month growth and that LMAX Exchange currently transacts around $3 billion in average daily volume. He added that FX (which includes Gold and Silver) comprises 95% of trading on LMAX Exchange. Also, he said that they are currently pleased with their liquidity, spreads, and execution speeds. With the product offering in place the way they want it to be, their current goal is getting more users on board. Mercer explained that this is what was meant in LMAX Exchange statement “Now 16 months into a fully funded 3 year business plan” where they had targeted certain goals for what the product offering should be in terms of liquidity and execution. On the product side, Mercer added that they “haven’t had one second of downtime over the last seven months.”
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In response to its current client base, Mercer said that LMAX has “good traction with retail brokers and money managers” and that they are working to increase their work with broker dealers either as the sole STP liquidity source or part of an aggregated feed.
Moving to financials, we asked LMAX for more information about the numbers that were supplied by Betfair in its first half results. Betfair had written “Cash and cash equivalents includes £18.1m of clients funds held and are matched by liabilities of an equal value in trade and other payables.” Barbara Pozdorovkina, Head of Corporate Development at LMAX Exchange explained that the £18.1m figure represented the total value of client funds at the end of October, but as of today the number has now risen 30% to £24m. In addition to client funds, Betfair also reported that LMAX Exchange had six month revenue of £1.8m with gross profit of £711k.
Overall, LMAX Exchange is billing the MBO as an opportunity for the future. On this point, David Mercer stated “The future is bright, our job is to continue the trajectory that we have started over the last 16 months as a fully funded company and become one of the premier destinations for trading FX over the next 3-5 years.”