Deal focus: CVC targets consolidation in online trading

CVC Capital Partners acquired IG Group, a UK-based financial trading platform specializing in contracts for difference (CFDs) and spread betting, in 2003 for GBP143 million (then $229 million). Two years later, the business was re-listed with a market capitalization of GBP393 million. CVC sold part of its stake in the IPO and completed its exit in 2010 by which point the stock price had more than quadrupled.

Now the PE firm is looking to replicate this success with Oanda Global Corporation, a foreign exchange trading platform that has ambitions to broaden its product range and capitalize on growth in Asia. CVC prevailed in a limited auction process to take out positions held by Index Ventures and New Enterprise Associates, as well as a host of individual shareholders. 

The PE firm’s fourth fund writes equity checks of $100-300 million and this investment sits in the middle of that range. However, the amount of capital deployed could be greater still, according to Siddharth Patel, a senior managing director with the firm. While Oanda is one of a handful of global leaders for currency trading, the market is highly fragmented and regionalized.

“There is an opportunity to consolidate within foreign exchange but equally to pursue diversification inorganically through buying data and analytics companies and non-foreign exchange trading platforms,” he explains.

Founded in 1995, Oanda’s first product was a website providing free currency conversion tools. An online foreign exchange trading platform arrived in 2001 and the company has since expanded its coverage to include commodities, indices, metals, and treasuries. It entered Asia Pacific in 2008 with the establishment of a base in Singapore and the region is now the largest revenue generator.

Most of Oanda’s customers are individuals, typically experienced investors who offer repeat business rather than the mass market of smaller players characterized by high churn and high burn rates. One of CVC’s objectives is to bring the foreign exchange share of revenue down to around 50% by taking this stable customer base into new areas. Trading services company Gain Capital is the closest to Oanda in terms of current product portfolio, but IG Group best represents the diversified business model it is targeting.

Expanding commodities and indices coverage is part of the plan, although the biggest push will involve CFDs for single equity names. This means leveraging both the Oanda brand and a tendency among individual foreign exchange traders to dabble in equities as well. 

“It’s a strong brand with a great technology platform and we want to expand beyond the focus on foreign exchange,” says Patel. “We have some relevant experience in terms of online consumer at the buyout level and how to upsell and cross-sell different products. This is a relatively simple cross-sell – ensuring that your core clients are cost-effectively introduced to new products. We can help the company with that.”   

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• Topics
• Southeast Asia
• Buyouts
• Technology
• Asia
• CVC Capital Partners