In June 2012 FXCM acquired a controlling stake in Lucid Markets, a leading institutional forex market maker, valuing the company at $177.5m.
Structure of the deal: FXCM acquired a 50.1% controlling interest in LMT, an electronic market maker and trader in the institutional foreign exchange spot and futures markets headquartered in the U.K. to expand the Company’s presence and capabilities in the institutional marketplace. As consideration, the Company issued a $71.4 million, 3.5% unsecured promissory note, and 9.0 million unregistered shares of the Corporation’s Class A common stock to Lucid sellers as well as a $15.8 million, 3.5% unsecured promissory note for all liquid assets for a total purchase price of $177.5 million.
Not much was known about Lucid’s financial results before that and FXCM is slowly releasing more and more information. At the acquisition date FXCM disclosed that Lucid transacted $13.4 trillion in volume in 2011. In its Q2 2012 report FXCM released some information about Lucid’s Q2 2012 performance: revenue significantly dropped (as for most other market participants) and accounted for about $3.9 million in June 2012 for FXCM, meaning Lucid’s revenue in Q2 2012 was about $8 million (a fifth of 2011 and similar to 2010) – this may explain the rather low multiple FXCM paid for Lucid.
Today we are treated with even more information: summary of Lucid Markets’ P&L since inception in April 2009. With only about 16 employees the business is amazingly profitable.
| 31 December | 31 December | 16 April 2009 through | |
|---|---|---|---|
| 2011 | 2010 | 31 December 2009 | |
| $000 | $000 | $000 | |
| TURNOVER | 149,185 | 76,274 | 7,163 |
| Cost of sales | -34,333 | -23661 | -2834 |
| GROSS PROFIT | 114,852 | 52,613 | 4,329 |
| Administrative Expenses | -1,436 | -756 | -202 |
| OPERATING PROFIT | 113,416 | 51,857 | 4,127 |
| Interest receivable and similar income | 6 | 5 | - |
| Interest payable and similar charges | -34 | -183 | - |
| PROFIT FOR THE FINANCIAL PERIOD BEFORE MEMBERS’ REMUNERATION AND PROFIT SHARES | 113,388 | 51,679 | 4,127 |
| Members’ remuneration charged as an expense | -10,152 | -15923 | -625 |
| PROFIT FOR THE FINANCIAL PERIOD AVAILABLE FOR DISCRETIONARY DIVISION AMONG MEMBERS | 103,236 | 35,756 | 3,502 |
With $13.4 tn in volume, and $114.8 mn gross profit in 2011 – that would put profit per million traded at around $8.50 – can that be right? Sounds incredibly low. That would equate to 0.085 pips in eur/usd for example. And that was the good year.
Institutional fx marketmaking is either an incredibly low margin business, or i got these numbers wrong..