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Back when FTMO bought OANDA at the start of this year, it was a sign that prop had ‘made it’ to a large extent. The first prop was buying out one of the larger players in the online trading industry.
Because FTMO generates a lot of cash and OANDA’s private equity owners wanted out, my assumption was always that the prop firm bought the brokerage group from its own reserves and on the cheap.
It’s entirely possible that is what happened. However, recently one of those random things that you find by mindlessly browsing the internet happened. This was a profile for a Czech lawyer who claimed to have facilitated an acquisition for FTMO involving a consortium of large, local banks. Interesting!
Digging into some documents in the heralded land of Bohemia, we find that FTMO did some restructuring over the last 12 to 18 months.
The ultimate holding entity that operates FTMO’s group of companies was switched to a firm called OMHC, which is also based in the Czech Republic.
More significantly, OMHC has pledged all of its shares to UniCredit as collateral for something that looks like a revolving credit facility.
That deal was set up at the start of this year and it provides FTMO with access to up to $625m for an 11 year period. The actual details of the lending facility are not clear. It seems very unlikely that FTMO would need that sum of money to buy out OANDA entirely. We also don’t know how much – if at all – FTMO has drawdown from that facility.
Some terms of the deal are public. For example, FTMO cannot be sold without UniCredit’s approval. The bank has no voting rights within FTMO but would do if the prop firm breaches its lending agreement with the company.
Unfortunately, but not unusually, we don’t have the structure of the loan. What has probably happened is that UniCredit is acting as security agent and arranger, with several banks providing different levels of financing. Or in low IQ terms, UniCredit holds the collateral (FTMO) and set up the deal. But the actual cash is provided by a number of different banks.
This deal in and of itself is not unusual. What is striking about it is the fact that it’s a prop firm getting that level of financing. There are a few consequences and I think they’re actually pretty positive.
First up, the fact that banks were willing to provide a lending facility like this lends the industry a huge level of credibility. They wouldn’t lend the money if they didn’t think things were ‘legit’.
The other part for me is more regulatory. A lot of people think that this industry is going to get killed by the regulators. That could be the case somewhere down the line but what is so interesting about this is it shows just how ‘big’ FTMO has become in its home country.
Maybe I am naive but typically countries will look – to some degree – to protect a local success story. This could now be the case with the prop industry in the Czech Republic.
The final point is that it could mean FTMO will absolutely wreck any competitor in the prop space.
Given that the company’s cash holdings were already high and it had no debts, I would be surprised if they had to draw down that much money from this facility to take over OANDA.
Consequently they have a massive borrowing facility available to them for a decade.
I generally find with bonds, debt, and lending facilities that the lawyers’ fingerprints are all over them, complicating things, adding different clauses and so on. So what the exact terms are, we’ll probably never know and I may be missing something.
Nonetheless, it does seem like they have achieved something very positive for the prop industry as a whole but also a level of financing that means they continue to dominate that industry for a long time to come.
