Last month it was reported that Australian forex broker, Pepperstone was contemplating an initial public offering (IPO) or sale. The fast growing broker who has grown its monthly forex trading volumes to $70 billion since launching in 2010, had reportedly rejected numerous buyout bids. In addition, following the successful IPO of OzForex, a foreign exchange transfer firm on the Australian Stock Exchange, it proved that there is demand in Australia for financial firms in the capital markets.
Today, chatter of possible IPO grew as the WSJ reported that Pepperstone has contracted Berkshire Capital, a New York-based investment bank that provides services to the Australian market through its local Sydney office. As a specialist in transactions, Berkshire may also have been brought in to help the broker negotiate better terms from its previous bidders. Speaking to Pepperstone CEO, Owen Kerr last month, he told Forex Magnates that, “Pepperstone is not closing the door on other offers that it may receive, and are open to other offers. We are interested in the potential and future.”
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Despite being a healthy year for forex IPOs, as well as public brokers outperforming the market in 2013, the M&A market hasn’t been as kind. Recent deals of GAIN Capital purchasing GFT, as well as Swissquote’s buyout of MIG Bank featured low multiples on their revenues. Therefore, the highest multiples may only be available through tapping the IPO market.
One factor that could limit multiples from Australian brokers is potential regulatory changes in the country. The Australian Securities and Investments Commission (ASIC) published a warning about the risks of forex trading last week. The letter followed the liquidation of GTL Tradeup last month, after client funds were found to be missing from the Australian licensed broker. Using their ASIC licenses, brokers in the country have been successful in courting APAC country customers. Therefore, any restrictions on margin requirements or account funding could lead foreign traders to search elsewhere for their trading needs.