Jefferies Financial Group has provided details on its acquisition of Stratos formerly known as FXCM.
During the fourth quarter of 2023, Jefferies acquired Stratos Group International (formerly FXCM Group, LLC, or “FXCM”).
Jefferies has historically held a 49.9% voting interest in Stratos. In March 2023, certain noteholders of Global Brokerage Inc. (“GLBR”) filed an involuntary bankruptcy petition against GLBR and its subsidiary, Global Brokerage Holdings LLC (“Holdings”), which holds a 50.1% voting equity interest in Stratos.
On September 14, 2023, Jefferies completed a foreclosure on the collateral that GLBR had pledged to secure its obligations under a credit facility, which consisted of GLBR’s equity interest in Stratos. As a result of the foreclosure, Jefferies owns 100% of the outstanding interests of Stratos; and Stratos has become a consolidated subsidiary.
In connection with the acquisition of the additional 50.1% interests in Stratos, Jefferies extinguished its senior secured term loan to Stratos of $39.2 million and recognized a gain of $5.6 million.
Upon the acquisition, Jefferies remeasured its previously existing 49.9% interest at fair value and recognized a loss of $4.7 million, representing the excess of the carrying value of the 49.9% interest of Jefferies’ $47.9 million equity method investment over its fair value at the date of acquisition. The fair value of the previously existing equity interest was measured using an income approach based on estimates of future expected cash flows applying a risk-adjusted discount rate of 24.5%.
Critical estimates to derive future expected cash flows includes the use of projected revenues and expenses, applicable tax rates and depreciation factors with the risk-adjusted discount rate based upon an estimated weighted average cost of capital for the acquired business.
No consideration, other than the nonmonetary exchange of Jefferies’ senior secured term loan, was transferred in connection with the foreclosure, which resulted in Jefferies obtaining 100% ownership of the outstanding interests of Stratos.
In applying acquisition accounting, Jefferies estimated the overall enterprise fair value of Stratos consistent with the methodology utilized to fair value Jefferies’ previously existing 49.9% equity interest. The enterprise fair value was allocated based on the fair values of the acquired assets and assumed liabilities resulting in a gain of $0.9 million and goodwill of $5.5 million.
