Freetrade bought by IG Group, £160m

wmb194

Freetrade's being bought by IG Group for £160m. IG is a FTSE250 company. I don't know much about IG but it should allay people's fears regarding Freetrade's financial stability. Estimated completion is mid-2025.

https://www.thisismoney.co.uk/money/markets/article-14292333/Freetrade-snapped-160m-IG-investors-bought-crowdfunding-likely-lose-out.html#:~:text=Online%20trading%20platform%20IG%20Group,new%20customer%20segments%20and%20capabilities.

IG RNS (LSE:IGG): https://www.londonstockexchange.com/news-article/IGG/acquisition/16854887

masonic

It's an odd one because IG already have a trading platform, so they are effectively paying £200 per customer for some additional market share. Unless there is something fantastic about Freetrade's infrastructure that IG couldn't easily replicate. Perhaps they are following in the footsteps of Interactive Investor, who gobbled up much of their competition to grow to a size where they could be profitable (only to get acquired themselves by abrdn).

But it gives yet another example of why you shouldn't be tempted, purely as a consumer who uses and likes a product, to participate in equity crowdfunding for that product.

wmb194

masonic said:

It's an odd one because IG already have a trading platform, so they are effectively paying £200 per customer for some additional market share. Unless there is something fantastic about Freetrade's infrastructure that IG couldn't easily replicate. Perhaps they are following in the footsteps of Interactive Investor, who gobbled up much of their competition to grow to a size where they could be profitable (only to get acquired themselves by abrdn).

But it gives yet another example of why you shouldn't be tempted, purely as a consumer who uses and likes a product, to participate in equity crowdfunding for that product.

IG looks to be primarily CFDs and spread betting. CMC Markets via CMC Invest and Trading212 are two other CFD providers that have been pushing into ordinary stockbroking and cash Isas. Is the CFD market saturated and they're looking for new opportunities?

IG's ordinary stockbroking revenues are currently a very small proportion of its business:



https://www.londonstockexchange.com/news-article/IGG/first-quarter-revenue-update/16661325

masonic

IG's share dealing platform seems to lack a clear target customer. It (normally) has an £8 per month custody fee, which means it won't be attractive to those with small holdings. Trading is free except for UK listed shares, which are charged at £3 per deal, which makes is going to put off large-scale ETF investors. So that leaves those with large holdings wanting to invest commission free in individual shares listed in the US or Europe, but not the UK. But even there it isn't the most competitive.

Unlike T212 (for the moment), it doesn't seem willing to cross-subsidise a free share dealing platform to gain numbers, but apparently wants to eliminate some of the competition and acquire customers that way. I wonder if it means reducing fees for the existing platform? I see they are already temporarily waiving the custody charge for new customers.

As far as CFD providers moving into share-dealing, I've tended to take a more cynical view as to the 'why'. Cross-selling would seem the more likely motive, although I don't think there is any evidence of any of these providers enticing share dealing customers into their more lucrative products.

Hoenir

The value is most likely in the technology acquired. The last published accounts for Freetrade up to the 31st December show accumulated losses of £92 million. With the competition in the market and reduced trading volumes probably now struggling to make a decent return. The budget will impact staff costs come April. The shareholders can walk away happy. 

wmb194

Hoenir said:

The value is most likely in the technology acquired. The last published accounts for Freetrade up to the 31st December show accumulated losses of £92 million. With the competition in the market and reduced trading volumes probably now struggling to make a decent return. The budget will impact staff costs come April. The shareholders can walk away happy. 

It's funny you should say that as part of Freetrade's original pitch was that it was developing its own software and would attempt to licence it to other companies.

brucefan_2

Hoenir said:

The value is most likely in the technology acquired. The last published accounts for Freetrade up to the 31st December show accumulated losses of £92 million. With the competition in the market and reduced trading volumes probably now struggling to make a decent return. The budget will impact staff costs come April. The shareholders can walk away happy. 

Some may indeed walk away happy. Others - myself included - who invested in Class B Shares through Crowdcube will lose out.

If I had invested purely in the 2019 issue I would have made a small profit. However, the combined outlay, having gone back in for a later issue will mean that I will lose out, given that B class Shareholders will receive 'approximately £1.19 per share'

I'm curious as to just how approximate this figure eventually turns out to be.

Hoenir

brucefan_2 said:

Hoenir said:

The value is most likely in the technology acquired. The last published accounts for Freetrade up to the 31st December show accumulated losses of £92 million. With the competition in the market and reduced trading volumes probably now struggling to make a decent return. The budget will impact staff costs come April. The shareholders can walk away happy. 

Some may indeed walk away happy. Others - myself included - who invested in Class B Shares through Crowdcube will lose out.

If I had invested purely in the 2019 issue I would have made a small profit. However, the combined outlay, having gone back in for a later issue will mean that I will lose out, given that B class Shareholders will receive 'approximately £1.19 per share'

I'm curious as to just how approximate this figure eventually turns out to be.

That's the nature of start-ups. The founding shareholders took the most risk and therefore receive the biggest slice of the pie. Every subsequent equity round to raise futher capital becomes ever more expensive. 

masonic

brucefan_2 said:

Hoenir said:

The value is most likely in the technology acquired. The last published accounts for Freetrade up to the 31st December show accumulated losses of £92 million. With the competition in the market and reduced trading volumes probably now struggling to make a decent return. The budget will impact staff costs come April. The shareholders can walk away happy. 

Some may indeed walk away happy. Others - myself included - who invested in Class B Shares through Crowdcube will lose out.

If I had invested purely in the 2019 issue I would have made a small profit. However, the combined outlay, having gone back in for a later issue will mean that I will lose out, given that B class Shareholders will receive 'approximately £1.19 per share'

I'm curious as to just how approximate this figure eventually turns out to be.

It seems you'll be doing better than the individual whose tweet was quoted in the article above:

"X user @onscreenlol said he invested £30,000 in January 2021. He adds: 'Today I'm being forced to sell my shares at £1.19 each for £3.8k.'
That is a loss of £26,200 on their original outlay."

Though I think they may have done their sums wrong. Either that or the business was valued at around £1.25bn for one of the Crowdcube raises.

brucefan_2

masonic said:

brucefan_2 said:

Hoenir said:

The value is most likely in the technology acquired. The last published accounts for Freetrade up to the 31st December show accumulated losses of £92 million. With the competition in the market and reduced trading volumes probably now struggling to make a decent return. The budget will impact staff costs come April. The shareholders can walk away happy. 

Some may indeed walk away happy. Others - myself included - who invested in Class B Shares through Crowdcube will lose out.

If I had invested purely in the 2019 issue I would have made a small profit. However, the combined outlay, having gone back in for a later issue will mean that I will lose out, given that B class Shareholders will receive 'approximately £1.19 per share'

I'm curious as to just how approximate this figure eventually turns out to be.

It seems you'll be doing better than the individual whose tweet was quoted in the article above:

"X user @onscreenlol said he invested £30,000 in January 2021. He adds: 'Today I'm being forced to sell my shares at £1.19 each for £3.8k.'
That is a loss of £26,200 on their original outlay."

Though I think they may have done their sums wrong. Either that or the business was valued at around £1.25bn for one of the Crowdcube raises.

I don't know what the 2021 price may have been and can't locate it anywhere at the moment.

In April 2019, I paid just over £0.84 per share and then in May 2020, £2.51 per share.

In 2023, Freetrade was valued at around £650 million