Britain's biggest spread-betting firm IG Group said on Wednesday it had agreed to buy 87.5 percent of Japanese online foreign exchange trading firm FXOnline Japan KK for 112.2 million pounds ($207.7 million).
Shares in IG rose more than 6 percent as analysts welcomed what they said was a good strategic fit that was reasonably priced and further reduced the company's exposure to a fast slowing British economy.
Part of the deal was financed by selling almost 28 million new shares for 295 pence each, raising 82.2 million pounds in what the company said was a heavily oversubscribed placement. The balance will be paid from existing cash reserves.
FXOnline has 45 employees and a 4 percent share of Japan's online retail foreign exchange market. Its revenues have grown at an average rate of 106 percent over the last two years, reaching 7 billion yen ($65.9 million) at the end of March when pretax profit was 4.9 billion yen ($46.15 million).
IG also said on Wednesday that recent bans on short selling shares in some banks were expected to have a "negligible" impact on group revenues and that its trading and outlook had not changed since issuing a trading statement on Sept. 9.
"While it remains difficult to predict future trends in volatility or client reaction to any changes in market conditions, the directors of IG believe the group remains well positioned for further growth and are confident of the group's prospects," the company said.
The company added that recent market volatility boosted client transactions last week to 200,000 a day, four times higher than average, while a record number of accounts were opened by new customers.
OVERSEAS EXPANSION
IG said the acquisition of FXOnline, its largest deal to date, fitted with its strategy of extending its geographic reach, and was likely to result in "significant" cost savings and enhance its earnings in the current financial year.
"There is a good cultural fit between the two businesses and the potential for immediate synergies," IG Chief Executive Tim Howkins said.
Howkins told a conference call that a lot of the risk involved in merging their operations had been reduced by integrating IT systems prior to the acquisition.
Cost synergies are estimated at 5 to 6 million based on server relocation and improved hedging said Goldman Sachs.
"Both strategically and in terms of price paid this looks to be a good deal for IG Group," said the analysts in a note.
The cost of the deal represents 8.7 times FXOnline's historic net earnings.
The move into Japan follows a number of foreign acquisitions and will bolster the proportion of revenues IG generates overseas to 39 percent from 27 percent.
Since 2002 IG has expanded into Australia, Singapore and Western Europe, while in November 2007 it entered the U.S. market when it bought HedgeStreet for 2.9 million pounds.
IG said it expected further growth in Japan from a fledgling market for trading shares via contracts for difference thanks to recent deregulation. IG said it had been approached by 3 to 4 securities firms to form partnerships in Japan.
Lexicon Partners advised IG on the acquisition while UBS acted for it in relation to the share placing.
