Gain Capital and GFT – Quick Math

I work in the Margin Trading Products industry, and have for years.  Recently there have been a number of M&A deals, and I like to keep track of who is who, what are the prices, and why deals make sense (or don’t).

Gain Capital (ticker: GCAP) announced the completion of it’s acquisition of privately-held GFT yesterday and they broke out some numbers:

GFT ownership gave up $73 mio in cash. Got $40 mio plus a $33 mio 5 year note at 8.5%.   Means the cash is flat.

GFT ownership got 3.6 mio shs of Gain (now at $13 per share) for a value of almost $47 mio. GFT turned over client assets of $208 mio.

Seems like Gain paid a price of better than 21% of client assets. Lots of brokers out there would love to sell for a price tag that is 20% of client assets.

I wonder if the 3.6 mio shares was locked in when the deal was announced. Gain was at approx $5 per share then. If the amount of shares was locked in at the time of the announcement, it means GFT was willing to accept $18 mio for the $208 mio of client assets (less than 9% price tag). Now with the price of GCAP at $13, GFT ownership struck a winning trade.

If instead the value of $47 mio was locked in at the announcement, then Gain shareholders win as there is a lot less dilution handing over 3.6 mio shares at $13 each compared to handing over just over 8 mio shares if they were still at $5.

For a company like GFT, who had recently been shut out of the US market by the regulators…….it looks like this was the deal of the decade.

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