Knight Capital Group is acquiring Hotspot FX, the electronic currency trading platform, in a $77.5m deal that will provide the equity trading and asset management services group with another revenue stream.
The deal is significant in terms of the maturity of the multibank portal industry and represents the first time that an FX platform has been sold. Previously, platforms such as Atriax and Centradia were unable to find buyers and eventually closed their doors.
"The addition of Hotspot advances Knight’s ambition to become a virtual exchange for high-quality trade execution across multiple asset classes," says Thomas Joyce, chairman and CEO of Knight Capital Group. “Additionally, the fee-based model fits well with our growth and revenue diversification strategy."
Both Knight and Hotspot executives underscored the benefits of accessing each other’s client bases in a conference call held last week. Hotspot’s biggest client groups are asset managers, hedge funds and commodity trading advisors, while Knight is firmly entrenched in the institutional investing space and can introduce Hotspot to these clients, a group that is increasingly dealing directly with the FX market.
John Eley, president and CEO of Hotspot FX says Knight has strong client relationships and deep technology resources that will “help take the Hotspot FXi marketplace to the next level.”
Knight’s Joyce, for his part, says he believes demand for electronic foreign exchange trading will continue to rise dramatically, especially as more institutions embrace FX as a source of alpha, and not simply a currency hedge.
The deal could also give hope to rival FX platforms that are interested in releasing shareholder value. It is a widely-held belief in the FX industry that the majority of multibank portals would struggle to turn down a significant offer as shareholders look to crystallise their investments. This deal sets a benchmark valuation for them.
Upon the close of the acquisition, expected to be within 90 days, Hotspot FX will operate as a separate subsidiary of Knight Capital Group.