The Last Look…
Posted by Colin Lambert. Last updated: October 24, 2023
It was interesting gauging reactions to last week’s two M&A announcements, while one was largely expected, the other was somewhat out of the blue, but in both cases I had people questioning why the deals were done.
The largely expected announcement was LMAX Group buying Cürex, and I am not saying it was expected because I predicted a platform deal in the start of year 360T podcast with my old friend and colleague Galen Stops…but I did predict it, it’s a pity the Trade of the Year wasn’t as accurate. What was a little left field for many was the GTS acquisition of HC Tech’s FX operation.
As far as the deal for Cürex is concerned, the rumour mill had been alive for some time, and the noise only increased when it lost its lawsuit against LSEG over claims it should receive revenues from the WM Fix and faced an-almost $12 million bill. For relatively small operations that are doing just enough to stay solvent – and there are quite a few FX technology providers in this position – such a hit to the bottom line can be catastrophic, and while there is no firm sense that this was the case with Cürex, it can’t have helped.
While some questioned why LMAX was taking the platform on, for Cürex, as far as buyers are concerned, LMAX is probably a good match – it has established itself as a big player in the business but retains an entrepreneurial spirit, something that should make integration a little easier. For LMAX Exchange, the spot platform, the deal gives it an entrance into a segment of the market it was light on, asset managers. This means therefore, unlike other deals we have seen over the years, there is unlikely to be a cannibalisation of either business, which means it makes sense.
What is interesting about the Cürex business is how low key it was – there are quite a few observers who, if you asked them the question, would struggle to explain the model. Some I have spoken to express respect for how good the analytics side of the business is, but then is that a service that still earns in an era of much greater competition?
More likely, LMAX is looking at this as a deal to bring that different client segment to its business, alongside more algo execution penetration. It will be helpful that both platforms operate on a no-last look basis – no need for arguments about that as the bedding in process starts!
There is a commonality between that deal and the one between GTS and HC Tech, for both targets have been the subject of attention in lawsuits. Cürex, as noted, lost its claim, meanwhile HC Tech continues to face allegations over its involvement in the Currenex FIFO and access lawsuit.
The deal with GTS leaves any legal liability from that lawsuit with HC Tech, meaning GTS is getting a “clean” deal, it would be fascinating to know the financials behind it given that clause and the fact that GTS really needs an FX business.
I say “really needs” because alongside the perpetual race to shave a few microseconds off the round-trip time to an exchange, GTS is in competition with some heavyweight non-bank market makers who operate in all asset classes. Think Citadel, Virtu and even, more recently, XTX Markets – they all have equities, futures and FX businesses – GTS did not have the latter.
If it is to compete with its peers, therefore, it needed the comfort of an FX business and the revenue stream that provides. FX is unlikely to ever be the biggest part of GTS’ business, the sense is it is no longer that at XTX Markets even, where equities have taken over, but it can provide a steady revenue stream that is less dependent on market direction and is less subject to regulatory costs. Throw in the uncertain future for the market structure in the US for example, where regulators seem to question the current framework almost on a weekly basis, and perhaps GTS just thought it would be nice to have a steady earner in the background?
For HC Tech’s FX business, presumably this deal sees it walk away from any negative impact from a potentially bad outcome from the lawsuit – it also, as State Street did when it retired the Currenex brand, gives it a chance to operate in the market under a different name, thus distancing itself if counterparties minds from what may, or may not, have gone on several years ago.
So both deals make sense to me and perhaps those questioning them are thinking too big. It is likely that most of the large deals in the FX world are done and dusted, so it is very much about picking up value around the edges, which is what both buyers are probably trying to achieve.
The good news for the FX industry is that these two deals show that people still see value in the business – notwithstanding both might have been executed at substantially less than they would have a few years ago. Neither is likely to prove to be a game-changer in terms of how the FX landscape looks – that sort of impact is probably reserved for any potential deals in the post-trade space, and that in itself is something of a change to the normal order of things over the past two decades.