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FXCM's Next Big Deal to Happen before June 2014?

Yesterday FXCM, the major US Forex broker, published a set of metrics that were far from showcase ones and the conference call following the publication shed some light on the factors behind the performance.  These included subdued volatility that has led to lower trading volumes, as both FXCM's chief executive Drew Niv and chief financial officer Robert Lande said. In such an environment, the company is pressing with acquisitions and here is what the conference call had revealed about the next acquisition in the pipeline.

 
 

Was the third-quarter really that bad?

 
Indeed, the net revenues for the third quarter fell by 1% year-on-year to $113.2 million, while the net income (adjusted pro forma) dropped 22% to $9.7 million. But the latter result is not so dismal given the $4.7 million in net profit generated by Forex.com, the US Forex rival. 
 
We've already mentioned lower volumes as a crucial factor for the drop in revenues and profits: for example, retail average daily volumes were down by 16% in the third quarter against the second quarter. But is this result so poor indeed? Well, in fact the third-quarter results surpass those from any quarter apart from the first quarter of 2012.
 
The point here is not to draw any drastic conclusions about the performance of a company given some results that could be meager temporary blips. But, of course, business does not tolerate negligence of any data and FXCM has been seeking alternative sources of income to shield the effects of lower volatility (and volumes).
 
 

The M&A Push

 
In response to the lower trading activity, FXCM has undertaken a push into acquisitions – it's as simple as this: favorable trading conditions allow the broker to deliver robust organic growth, while weak conditions drive the company to expand via acquisitions. The broker pursued three acquisitions in the third quarter: it took over the retail accounts of Alpari US, acquired 50.1% stake in Forex intelligence expert Faros Trading and a $12-million note in Infinium Capital
 
As both Drew Niv and Robert Lande stressed during the conference call, the broker is well-placed to keep up with the M&A push thanks to a strong balance sheet. We are talking about $638 million in shareholder equity, $421.9 million of own cash and a $155 million credit facility.
 
The question that looms is what will be the next acquisition target?
 
 

The Next Big Deal

 
During the conference call, Drew Niv labeled the transactions during the third quarter as “small” and said that there are plans about a bigger deal. Despite the fact that two of the acquisitions in the third quarter were of institutional nature, FXCM's CEO was adamant that the next deal would be in the retail Forex sector. The broker has even imposed a deadline for the clinching of such a deal – June 2014. If the purchase does not become a fact by this deadline and the trading conditions do not improve, then the company would rather pursue a share buyback. 
 
 

The What Ifs

 
Of course, there are a bunch of factors that could hamper a deal – pricing, for example. Another issue to which Niv pointed are regulations, as all deals should be concluded having in mind net capital requirements and reporting rules. Of course, the broker is keeping an eye on those and would hardly allow disturbances of this essence. 
 
All we have to do is wait for several months to see how the plans of FXCM materialize.
 

About FXCM Inc. 

 
FXCM Inc. (NYSE:FXCM) is a global online provider of foreign exchange, or FX, trading and related services to retail and institutional customers world-wide. 
 
At the heart of FXCM's client offering is No Dealing Desk FX trading. Clients benefit from FXCM's large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. FXCM's U.K. subsidiary, Forex Capital Markets Limited, offers Contract for Difference ("CFD") products with no re-quote trading and allows clients to trade oil, gold, silver and stock indices along with FX on one platform. In addition, FXCM offers educational courses on FX trading and provides free news and market research through DailyFX.com. 
TAGS: fxcm  fxcm forex broker  fxcm us broker  fxcm acquisitions  mergers and acquisitions  forex m&a  corporate strategy  forex deals  retail forex  institutional forex  june 2014 

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