FXall, the leading electronic platform in the foreign exchange market, is set for a new ownership structure. Euromoney has learnt that the ECN’s owners, a consortium of leading FX banks, are locked in discussions about a possible sale of up to 30% of the company to a private equity buyer.
Goldman Sachs has been appointed to run the books on the sale. Two counterparties – both private equity firms – are bidding for the stake.
Bankers involved in discussions about the deal say its completion is some way off. A debate surrounds the amount of stock the bank owners are prepared to unload. Most are in favour of a sale of between 25% and 30% on a pro rata basis, although Euromoney understands that a small number of banks would like to see a complete sale of FXall.
Not so hot
Discussions have apparently been slowed by the recent sale of Hotspot. That deal failed to realize for its previous owners the valuation that most in the market had expected, leading the bank owners of FXall to revise their expectations.
Fxall, Goldman Sachs and banks involved in FXall all declined to comment. But the proposed sale is the most concrete of a host of rumours sweeping the eFX market – a space that even in the quietest month is full of gossip is about matters such as who is supposedly buying whom, who is shutting down, whose technology is good and whose is bad.
This month, the gossip has not just been prolific; it has also been highly scurrilous. The announcement in January of Hotspot’s sale to Knight Capital appears to have really cranked up the rumour mill.
Not for sale
In addition to the partial sale of FXall, Icap admitted at the end of January that it was in preliminary discussions with a view to a purchase of EBS. The latest noise surrounds Currenex, but the company has denied this is true. Currenex chief executive Cliff Lewis, who has repeatedly said over the past few months that he would like to be a consolidator, rather than be consolidated, states bluntly: “We’re not for sale and don’t need money.”
Apparently, though, the sale of Hotspot has set a benchmark for valuing FX ECNs. Hotspot was apparently almost sold for $125 million last year, but eventually it went for about $77.5 million. Consequently, FXall is not now able to attract as much as it thought, even though its volumes are continuing to expand. According to the company, 2005 volumes came in 40% higher than the previous year and it is proud of the fact that it has a sufficiently diversified client base to have seen growth in every quarter of its existence.
But the award for this month’s most scurrilous rumour goes to the story that one ECN is arbitraging its own platform. The buzz is that it had been using a broker as its “points bank” and capitalizing by cashing in on inverse prices resulting from system latency.
The rumour has it that it has then been using the cash the activity generates as a secret fund to cross-subsidize its business and charge a low commission. The company that was the subject of these rumours denies them in the strongest terms. Most market participants are flabbergasted by the claim. There are few secrets in FX market that remain uncovered, so it seems unlikely that the substance of this rumour is true.
If nothing else, the bad mouthing makes it clear that the ECN space is extremely competitive; most of the big liquidity providers make no secret of the fact that they would prefer to have business coming onto their proprietary platforms than getting it from an ECN. The fact that most of the rumours tend to originate from within the ECN sector itself is proof that the inverse of the old English saying, “where’s there’s muck, there’s brass”, is also highly apt.