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Looking back at your life over the last few years, I am going to take a guess and say the fact that ThinkMarkets almost went public in 2023 is not something that sticks out in your mind. But happen that did (not).
I am probably not alone in being spammed endlessly by ads from ThinkCapital, the broker’s prop arm, at the moment and every time I see them, I think back to the halcyon days of 2023 and the IPO that never was.
To jog your memory, ThinkMarkets was supposed to go public via a SPAC listing. This is where something akin to a listed fund buys a company, merges with it, and takes the company public in the process.
A key feature of a SPAC is that after a deal is announced, investors have the ability to redeem their shares. There are usually two reasons for this.
One is to attempt a risk-free trade that is too long-winded to explain here (but which we have looked at before with Saxo Bank’s failed SPAC). The other is because you don’t approve of the deal and want your money back.
When shareholders had the ability to redeem their shares in the ThinkMarkets SPAC, 99.1% of them decided to do so. This does not suggest they were big believers in the deal. The main reason for that was simple – ThinkMarkets was not making money and had a lot of debt.
If you look back at the IPO prospectus, ThinkMarkets detailed its financials for 2020 – 2022. The broker made an AUD 1.7m profit in 2020 versus AUD 96.2m in revenue. Over the following two years the company lost AUD 11.2m (2021) and AUD 19.8m (2022). The exchange rate has changed since but that equates to a roughly $20m loss over the course of two years.
In March of 2023, before the prospective IPO, the company had $39.8m of debt versus cash holdings of $8.1m.
That reflected a couple of steps the company took to access debt markets and shore up its operations. Firstly, it issued a convertible note in 2021 worth $10m.
Then it got access to a credit facility from another investor. That gave the brokerage group access to a total of $30m across 2022 and 2023, with the firm only able to draw down a maximum of $15m during each year, capped at $2.25m per month.
By March of 2023, the broker had used close to $14m of that facility, implying it took out close to the maximum amount every month. Combined with the $10m convertible note, this left the firm with large liabilities.
It’s also worth noting that the interest on these debt facilities was high. For the $30m credit facility, for example, the annualised rate of interest was 11.11%. Investors in the convertible notes would have received a blended average rate of 10.66%. However, the final yearly rate on the note had a clause that it meant it would rise to 15%(!) if the company did not go public.
The bottom line is that ThinkMarkets was not profitable, did not have much cash, and had borrowed a lot of money to keep its operations running.
Did prop save ThinkMarkets
When this all came out my thinking was that something akin to what happened with NAGA, which got taken over by another broker, would also end up taking place with ThinkMarkets. That hasn’t happened though.
The terms of the debt facility were such that repayments would have to be made over a 24 month period. That will be at the end of this year. The final payment on the convertibles was due in September of 2023.
Again, if you look at how much cash ThinkMarkets had versus the debt, your assumption would be that the company is cooked – something would have to give. More specifically, the terms of the debt facility were such that the loan was secured by ThinkMarkets equity. In other words, the lenders could take control of the company if repayments were not made.
Around the same time this stuff was happening though, ThinkMarkets became one of the primary players in acting as a technology provider to other props.
It seems weird to think that this was barely more than a year ago, but up until fairly recently, most props were just using a third-party company’s platform to offer clients trading. In return for that, brokers would take a fee for each account opened and based on trading volume.
ThinkMarkets was at one point of the main players doing this. Aqua Funded, InstantFunding, Funded Trading Plus, FunderPro, and BrightFunded were all working with ThinkMarkets at one point in time.
Unfortunately it’s very hard to know how many accounts props are or were selling. The only stat I have heard is one mid-sized player that currently sells 15,000 challenges per month(!). So if you imagine that ThinkMarkets was at one point doing something similar and taking a clip of each sale, it’s plausible they were making very good money from it.
The fact that since then they have gone ‘all in’ on the prop industry and launched their own brand, suggests that was the case. If it wasn’t making money, they wouldn’t bother to launch their own product.
How successful that has been is also hard to say, although a guy that worked at the venue for the event we did earlier this year had bought a $500 one. Is that an anecdotal sign of evidence? I don’t know.
Anyway, the bottom line is that ThinkMarkets looked like it was going to run out of cash and get swallowed up by debt. That has not happened.
If there was no new capital raising and the creditors did not take ownership of the firm in some way, I don’t see how the firm would be able to keep going much longer. So if none of those things happened or are yet to happen, then I think it’s entirely possible – prop trading brought ThinkMarkets back to life.
