Spencer sells City Index to GAIN Capital

Michael Spencer, the founder of interdealer broker ICAP, has sold his online spread betting company City Index to US rival GAIN Capital Holdings for £118m.

The deal will create a global company servicing 235,000 retail customers in more than 180 countries with annual trading volumes of more than $3tn.

It gives New Jersey-based GAIN Capital a significant stake in the UK online trading market, where City Index earns almost half of its revenues, and also boosts its presence in Asia, which accounts for more than a third of revenues at the UK company.

Mark Preston, City Index's chairman and chief executive, said the sector had come under pressure in recent years from shrinking spreads and commissions. "The result is you need more turnover, volume and activity to cover your costs."

Glenn Stevens, GAIN's chief executive officer who will lead the merged company, said that the deal "advances our growth strategy, creating scale for our retail business and accelerates the development of our innovative trading technology".

He added: "It boils down to being able to have enough of a broad offering [across] customer segment, product and geography." City Index, one the UK's oldest spread betting companies, was founded in 1983 and specialises in contracts-for-difference and foreign exchange. It is majority owned by IPGL, the private holding company for the interests of Mr Spencer, who is also a former Conservative party treasurer.

Under the combined group, about 61 per cent of retail volume will come from foreign exchange and 39 per cent from CFDs/UK spread betting in asset classes such as equities, indices and commodities.

City Index generated $124.8m in revenue and $10.7m in adjusted earnings before interest, tax, depreciation and amortisation during the 12 months to September 30.

The deal is GAIN's second acquisition in just over a year. In September 2013 it bought Global Futures and Forex, a foreign exchange and derivatives trading business. Four years ago more than 90 per cent of the company's revenue came from the US, but it has been diversifying.

On Friday GAIN reported record net revenues of $102.8m for the three months to September 30, a 69 per cent increase on the previous year.

Jefferies was the advisor to GAIN Capital and Keefe, Bruyette & Woods advised IPGL.

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