City Index owner Gain Capital has been approached about a takeover by a US rival according to the weekend press.
The interested party is said to be INTL FCStone a US commodities broker and a member of the influential Fortune 500 list of major US corporations.
INTL FCStone, which is a listed company trading on the Nasdaq under the ticker INTL, can trace its roots back to the mid-1920s. It has some 1700 employees and revenues, in 2019, that totalled US$975 million. The company is already active in financial markets such as FX and interest rate products and has offices in New York, Chicago, London and Frankfurt and across South America and Asia.
City Index has to some extent always been in the shadow of larger rivals IG Index
The business was founded and owned by City grandee Michael Spencer of ICAP fame. Mr Spencer remains as a minority shareholder having sold out to Gain Capital back in 2014 for £74million and he holds a two and a half per cent stake in the US-listed business.
We get the impression that Gain Capital has never made the most of the City Index business indeed in Gain’s most recent figures, which were for Q3 2019, they reported a loss of $2.10 million on revenues of some US$ 66.70 million. Both figures were substantially lower than the comparable numbers seen in 2018.
Gain also recently reported its monthly volume figures for December 2019, and they showed a -32% fall from those seen in December 2018 to US$130.80 million though that figure represented a +4.0% jump from the figures for November 2019.
Gain has set itself some ambitious targets to be achieved by the end of 2021 when it hopes to have grown new account numbers and retail volumes by +38% and +30% respectively compared to the full year 2018.
2020 was always going to be a year of transition for the company but perhaps not in the way that they had intended. Gain Capital shares rose by +2.89% in Friday’s trade closing at US$3.91.
This is not the first time that Gain Capital has been approached by a suitor. Israeli based Plus 500 approached the group in the summer of 2019, however, talks between the two parties broke down before any deal could be reached. Though it was always hard to see how Plus 500’s highly automated approach to customer acquisition and trading could have been combined with the more personal and hands-on approach of City Index and other Gain brands.
The perception in the market is that Gain Capital has struggled to consistently generate profit margins that compare favourably with its major rivals and that its operating costs and expenses have been too high. The company might benefit therefore from the economies of scale that a larger business, such as INTL FCStone could bring to the table.
If there is turn around potential in Gain Capital as their management believes, will they get the chance to realise that upside or will a new owner be doing it for them?
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.