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Re-rating: The price of a platform

Currenex’s sale may force a re-rating of FX platforms and their owners.

The $564 million State Street Corporation paid for multi-bank foreign exchange (FX) trading platform Currenex initially looked rich when it was announced on January 22. However, even cursory analysis suggests it had far from overpaid. The deal was done on a multiple of 22 times Currenex’s forecasted 2007 earnings, hardly excessive.

What it highlighted was how cheaply rival platforms HotspotFX and EBS were sold in 2006. Knight Financial bought Hotspot, which had made pre-tax profits in 2005 of around $9 million, for just $77.5 million. EBS was snapped up from its mainly bank consortium owners by Icap for around $825 million on a multiple that might have been as low as 15 times, once synergies were included.

There has been plenty of talk about competition in FX, but that should not have suppressed valuations to the extent they have been. After all, even if there are obvious pressures in FX, there are greater ones in the equity market. Therefore, it seems wrong that a business like the London Stock Exchange should be rated much higher than EBS and other FX trading venues.

Now that deal has been done, investors will inevitably see what is left to buy.

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