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“I can wait another year if it means getting double the valuation for the company” Peter Cruddas, CMC |
The press coverage also extended to the company’s founder and chief executive, Peter Cruddas, who established CMC in 1989 with £10,000 of his own money as a foreign exchange service provider dedicated to catering for the then neglected retail sector. Few in the market would disagree that CMC has fulfilled its original aims. In the process it has made Cruddas a wealthy man. CMC and other companies like it have done a fantastic job of attracting a fresh range of participants, such as the retail sector, to various financial markets and instruments. A fresh approach to risk management – almost no deal is considered too small – and the early embrace of technology, which has enabled small tickets to be processed and has helped to distribute CMC’s prices to a diverse, global audience, has underpinned the business. CMC pioneered the trading of FX on the internet in 1996, now something virtually taken for granted.
Cruddas and CMC’s story can easily be described as a rags to riches tale. Inevitably his success has earned him plaudits as an entrepreneur but has also generated envy. He is frequently described as one of London’s richest men and his fortune is primarily tied up in CMC.
As CMC neared its scheduled IPO last May, there were a few questions about the valuation Cruddas, who still effectively owns 95% of it, had put on the company. The flotation was intended to see CMC list with a market capitalization of between £630 million and £760 million. Although some might have felt this was rich, a comparison with its UK-listed rival IG suggests that Cruddas was not being overly optimistic. IG reported net income of about £36 million for the year to May 2006; it has a market capitalization of about £970 million and is trading on a prospective P/E ratio of 22. CMC’s normalized profit before tax for the year to March 2006 came in at £37.6 million.
But after a brief downturn in the wider market, Cruddas and his management board pulled CMC’s flotation at the last moment. Inevitably, there have been mutterings that there must have been a darker reason for the IPO’s cancellation. These mutterings grew louder at the end of 2006, when share options awarded to some of the company’s staff expired worthless.
Surprise
Cruddas seems genuinely surprised to hear that there have been grumbles emerging from the company. He says that the staff has now been told that the company will not undertake an IPO in 2007 and points out that very few have left. He adds that there was nothing sinister behind the decision to postpone the flotation, saying that the real reasons were that the board had grown fatigued by the whole process and also found that too much of its time was being diverted from what it should be doing. In addition, he is convinced that the company will continue to grow.
“We have decided to wait another year because the whole [IPO] process is time-consuming and it is not good for business for us to focus on a float when we know we can really get more value for our shares if we have one more year of hard work in CMC. There is no rush, we are cash-rich, we are making good profits and we have no outside shareholders. We are going to choose our time of float when it suits us,” he says.
According to Cruddas, a new company share option plan is being worked on to replace the options that expired late last year. He also points out that key, long-serving members of staff have received 5% of the company in stock. With his expectation that the company will come to market with a valuation close to £1 billion, it is not surprising that none of these individuals has left.
“Typically our last quarter through to March is always our most profitable and this is beginning to show up now. I fully expect the valuation to be in excess of £1 billion when we float,” says Cruddas. “We can definitely float on March 2007 numbers, market volatility permitting. We would probably get a valuation of around £900 million, maybe more. But as I said to you before, the directors are exhausted from the whole process and we are sitting on some big potential business that is beginning to come through. If we float in 2007 we will be leaving a lot on the table.”
He continues: “We took a tough decision not to float, but I know and I knew that CMC has tremendous growth opportunities and I can wait another year if it means getting double the valuation for the company.”
