LONDON: Plus500 Ltd has conditionally agreed to acquire all of the membership interests of Cunningham Commodities LLC., a regulated Futures Commission Merchant (FCM), and Cunningham Trading Systems LLC. (CTS), a technology trading platform provider, operating in the futures and options on futures market in the US.
Compelling strategic rationale
The Acquisition represents a major growth opportunity for Plus500, allowing the Company to instantly expand its geographic footprint and product offering in the significantly growing, but under-penetrated, US retail trading market in futures and options on futures.
The Acquisition is expected to:
· Deliver a substantial opportunity for Plus500 to leverage its best-in-class technology to enable market access to the millions of US retail investors looking for new trading opportunities;
· Ensure immediate access to, and the requisite licenses to operate in, the sizable and growing US market, where the Company does not currently operate or have a presence;
· Expand Plus500’s product offering into the US, with the Group entering the growing futures and options on futures market for the first time, diversifying its sources of revenue;
· Represent another step in Plus500’s transition towards becoming a global, multi-asset fintech group; and
· Align with the Group’s strategy of accessing future growth through organic investment in its technology as well as targeted bolt-on acquisitions.
Plus500 intends to apply its considerable financial and technological strength, as well as its substantial technological marketing expertise and resources, to scale and develop the acquired businesses over time, with a view to delivering long term shareholder value.
The Acquisition consideration of approximately US$30m will be funded from Plus500’s existing cash balances and paid on completion, subject to certain adjustments. Portions of the consideration are to be held in escrow for two years from completion of the Acquisition, for retention purposes.
For the year ending 31 December 2020, Cunningham generated gross revenue of approximately US$19m and profit before tax of approximately US$0.6m, with gross assets of approximately US$70m, and brings with it a scarce and valuable license to operate in the futures and options on futures market in the US.
The Acquisition is expected to be earnings accretive in its first full year and is expected to be completed during Q3 2021, subject to the receipt of certain regulatory approvals and other closing conditions.
Based in Illinois, and established in 1982, Cunningham is registered as an FCM with the Commodity Futures Trading Commission (CFTC), is a member of National Futures Association (NFA) and is a clearing member of the Chicago Board of Trade, Division of CME Group, Inc. (CBOT
Cunningham has a long-standing track record in the US futures and options on futures market, including strong relationships with direct customers, introducing brokers and futures exchanges, including the Chicago Mercantile Exchange (CME), the Intercontinental Exchange (ICE) and Eurex.
CTS is a software company which has developed and operates T4, a sophisticated technology platform recognised by the leading futures exchanges which supports Cunningham and other FCMs to help their customers to trade futures and options on futures contracts.
Cunningham and CTS are operated by highly experienced management teams, led by their respective founders, Bill Cunningham, Andrew Busby and Nate Ostrye, who will continue to lead the businesses following completion of the Acquisition.
It is intended that Plus500’s planned integration of Cunningham and CTS will leverage the following elements of Plus500’s best-in-class technology to scale CTS’s proprietary technology platform, enabling the future growth and development of Cunningham’s FCM business over the long term:
· Market-leading technological expertise;
· Robust system architecture;
· Proprietary marketing technologies, ROI-driven to drive further growth;
· Risk management capability;
· Diverse payment processing technologies and partnerships;
· Ability to manage service delivery to a mass audience; and
· Expertise in scaling operations to support platform growth.
US futures and options on futures market – major growth opportunity
The futures and options on futures market in the US represents a major growth opportunity for Plus500, particularly as a result of an increasing focus on futures exchanges in catering for retail investment in recent years.
Since 2017, there has been an 84% growth in retail trading volumes in the US futures and options on futures market, with the retail market now estimated to be worth c.US$2bn globally.
The US retail investor base is expanding, with growth in the futures and options on futures market being driven by substantial investment flows from equity markets. While the market continues to be predominantly driven by institutional investors, it is being disrupted by an increasing proportion of retail investment, due to a greater level of access, improved affordability and a strong reputation, with a number of leading, blue chip investment banks facilitating retail investor trading.
Growth is being further driven by initiatives introduced by futures exchanges, such as the CME, with the recent introduction of Micro E-mini contracts, enabling traders with a more cost-efficient way to gain access to the growing futures market.
The futures and options on futures market in the US is highly regulated, under the Commodity Exchange Act (CEA), which subjects FCMs to the rules and regulations of the NFA and the CFTC, as well as of the various exchanges on which customers trade.
David Zruia, Chief Executive Officer of Plus500, commented: “We are delighted to announce Plus500’s first acquisition and first entry into the US market. With a combination of Plus500’s best-in-class technology and Cunningham’s and CTS’s existing infrastructure, we expect to develop and scale the business in the growing US market and deliver long term shareholder value.
“The acquisition represents an important strategic step for Plus500 as we continue to transition into a global, multi-asset fintech group. Our long-term ambition is to enable simplified, universal access to financial markets, and I’m excited that we have taken a further step toward achieving this today.”
Bill Cunningham, Andrew Busby and Nate Ostrye, the founders of Cunningham and CTS, commented: “We are very pleased to become part of Plus500, given its focus on technology and innovation and its strong track record of growth, as we look to grow and enhance Cunningham and CTS over time. We are looking forward to a successful future together as we take the businesses to the next level of their development.”