UK's IG Group to buy DailyFX from FXCM Inc for $40 million

(Reuters) - Online trading company IG Group Holdings Plc IGG.L said it had agreed to buy news and research portal DailyFX and its associated assets from U.S. retail broker FXCM Inc FXCM.O for $40 million.

IG Group said the deal, which is expected to close by the end of October, would add about 5 million pounds ($6 million) to ongoing operating costs annually and add to earnings from IG’s 2018 financial year.

The British company also said it expected to account for the purchase price at a constant rate spread over 10 years.

Analysts said this meant total costs of 8 million pounds, after adding 3 million pounds in amortization annually.

IG Group, which has over 152,600 active clients according to its website, said the deal would “significantly enhance” its ability to bring on new clients and improve the retention rates of current clients.

“Our discussions with IG this morning indicate that IG is not buying a revenue stream but instead a client recruitment engine,” RBC analysts said.

“While client recruitment and retainment are positives, this acquisition does add to an already rapidly increasing cost base,” the analysts added.

IG Group said this month that financial markets had become “increasingly subdued” in the two months after Britain’s shock vote to leave the European Union, presenting clients with limited trading opportunities.

Upon completion, the DailyFX business along with its web domains, source code, content and 34 employees will be transferred to IG, FXCM said.

Assuming a cost base of 8 million pounds and revenue per client of 2,000 pounds, DailyFX needs to add 4,000 customers every year to break even, Barclays analysts said.

FXCM, which is the largest U.S. retail broker, with about 200,000 customers worldwide and 88,000 in the United States, said it would use the proceeds from the sale to repay debt owed to Leucadia National Corp LUK.N.

FXCM, reeling after customers lost more than $200 million from the surging Swiss franc early in 2015, borrowed $300 million from Leucadia to keep operating.

“While DailyFX is a high quality asset and was not a targeted asset to sell, the opportunity came along and it was something we felt we should take advantage of,” FXCM CEO Drew said.

“At this time, we do not plan on selling any other retail FX assets...” he added.

IG’s shares were up 0.058 percent at 865.5 pence at 0847 GMT on the London Stock Exchange.

($1 = 0.7715 pounds)

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Sunil Nair