IPO Preview: FX Alliance

| About: FX Alliance (FX)

Based in New York, NY, FX Alliance (NYSE:FX) scheduled a $75 million IPO with a market capitalization of $410 million at a price range mid-point of $14 for Thursday, February 9, 2012. FX is one of nine IPOs scheduled for this week (see our IPO calendar).


FX presents itself as the leading independent global provider of electronic Foreign Exchange trading solutions, with over 1,000 institutional clients worldwide.

However, over the past six quarters FX's quarterly revenues have dropped $24.6 million in the December 2011 quarter from $29.5 million in the June 2010 quarter.

100% of the proceeds are to selling shareholders.


We need to see a positive progression in quarterly financial metrics to like a company, FX fails in that regard and therefore we would pass on it's IPO, especially because the 100% of the proceeds go to shareholders.

We would rather see a company with a good growth plan than can use IPO money to finance growth.


FX presents itself as the leading independent global provider of electronic FX trading solutions, with over 1,000 institutional clients worldwide.

FX provides institutional clients with 24-hour direct access, five days per week, to the FX market, which is the world's largest and most liquid financial market. In a typical FX transaction, market participants buy one currency and simultaneously sell another currency, a combination known as a "currency pair."

FX says that its proprietary technology platform enables the company to deliver efficient and reliable FX price discovery, trade execution and automation of pre-trade and post-trade transaction workflow for more than 400 currency pairs with access to a deep pool of liquidity from the world's leading banks and other liquidity providers.


FX stays on top as it moves towards IPO read more.

Knight's Hotspot FX Named Best Professional e-Trading Venue by FX Week read more.

Industry background


The electronic trading industry is highly competitive and FX expects competition to intensify in the future. In general, FX competes on the basis of a number of key factors, including: the liquidity available through the platform; the quality and speed of execution; total transaction costs; technology capabilities, including the ease of use of FX's electronic trading platform; and range of products and services offered.

FX faces five main areas of competition:

• Single bank systems: The major global and regional investment and commercial banks offer institutional clients electronic FX trade execution through proprietary systems branded with the banks' names. Many of these banks expend considerable resources on product development, sales and support to promote their single-bank systems. The single-bank FX systems may be offered as part of a multi-product offering, including fixed income securities, commodities and derivatives.

• Other multi-bank, interdealer and ECN electronic trading platforms: There are numerous other electronic trading platforms. These include ICAP through its EBS offering; Reuters; FX Connect and Currenex, both owned by State Street Bank (NYSE:STT); BGC Partners through its eSpeed offering; Knight Capital (NYSE:KCG) through its Hotspot offering; 360T Trading Networks; Integral Development Corp. and others.

• Telephone: FX competes with FX business conducted over the telephone between banks and broker-dealers and their institutional clients. Institutional clients have historically purchased foreign currencies by telephoning FX sales professionals at one or more banks or broker-dealers and inquiring about the price and market liquidity of currencies. Non-electronic trading including by voice remains the manner in which approximately 35% of FX trades are conducted between market participants, according to a 2010 report by Aite Group.

• Market data and information vendors: Several large market data and information providers currently have a presence on virtually every institutional trading desk, including Bloomberg and Reuters. Some of these entities currently offer varying forms of electronic trading of FX.

• Interdealer voice brokers: The major interdealer brokers offer voice-broking between banks in FX products, including FX forwards, NDFs and options. Many of these firms have developed or may develop electronic trading systems. While they are primarily focused on interdealer trading, they may in the future offer their services to non-dealer clients.


FX declared a dividend of $2.23 per share, representing an aggregate principal amount of $63.1 million, pro rata, to holders of record of FX's common and preferred stock as of January 24, 2012, as a return on their capital, and a dividend equivalent payment, as an anti-dilution measure, of $6.9 million to holders of vested options to purchase FX common stock, which the board of directors, based on discussions held with Company's management, has determined are in the best interests of our stockholders and optionholders.

In general we do not like to see a company pay dividends out just before an IPO.


100% to selling shareholders

Affiliates of Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and Morgan Stanley & Co. LLC, which are underwriters, are beneficial holders of our common stock and will sell shares of common stock in this offering (see "Principal and Selling Stockholders"). As a result, such affiliates will receive more than five percent of the net proceeds of this offering, as selling stockholders

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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