Retail FX and CFD brokers NAGA Group and Capex.com have announced a merger between the two groups, which will see Capex.com’s shareholders become majority owners of the combined company.
While the merger is only expected to be completed in Q2 2024 (and is subject to usual closing conditions, in particular regulatory approval), the combined NAGA-Capex.com operations represent combined sales of approximately USD $90 million ($40 million of which is attributable to Capex.com, and about $50 million to NAGA), and EBITDA of approximately $6.5 million in this financial year.
Capex.com and its shareholders will invest a total of USD $15 million in equity into the business combination, bringing some fresh cash into publicly traded NAGA, which has struggled this year to refinance its debt obligations.
The combination will be effected via a Reverse Merger between publicly traded The NAGA Group AG (ETR:N4G) and privately held Key Way Group Ltd, which operates the Capex.com brand. NAGA Group will issue approximately 170 million new NAGA Group shares to Key Way Group’s shareholders, such that they will own approximately 75% of the combined, publicly traded company. The exact number of new shares and the resulting shareholding ratios will be determined on the basis of a valuation report by an international auditing firm.
The parties have also agreed that the managing partner of the Key Way Group, Octavian Patrascu, will be appointed Chairman of the Management Board of The NAGA Group AG. The transaction structure also includes the planned issue of share options amounting to 20% of the increased share capital.
The merger will be accompanied by the issue of a convertible bond without interest (zero coupon) with a term of 12 months and a total issue volume of up to EUR 8.2 million, which will be offered to shareholders for subscription. The subscription offer for the convertible bond is scheduled to begin in December 2023. Major shareholders of The NAGA Group AG will waive their subscription rights in favor of individual Key Way Group shareholders, and the latter (i.e. Octavian Patrascu personally) intends to subscribe for convertible bonds up to a volume equivalent to USD $9 million as far as subscription rights are not exercised.
Capex.com is a globally regulated, fast growing (80% CAGR over the past three years) Retail FX/CFDs broker with licenses in Europe and Abu Dhabi. Capex claims an active user base (during 2023) of more than 60,000, and claims growth by more than 15,000 signups monthly on average. The company has raised USD $31 million in equity financing thus far, and its revenues have developed rapidly in the past three years from USD $26 million revenue in 2021 to an estimated USD $40 million in 2023, despite what the company called a very challenging market environment.
Capex operates with more than five licenses, including the ADGM license in Abu-Dhabi. The company is led by Founder and CEO Octavian Patrascu, a former Key shareholder who previously led the growth of CFDs broker Markets.com (2010-2015).
The joint entities will operate 8 licenses globally, and this year are estimated to generate USD $90 million in joint revenue with an EBITDA of USD $6.5 million. The joint annual trading volume in 2023 will stand around USD $300 billion dollars and the combined platforms will be home to 1.5 million users from more than 100 countries, expecting to reach 5 million users by 2025. With its joint licenses, NAGA and Capex can operate in more than 50 countries, including the fast-growing MENA region where NAGA will be able to roll-out its innovative social trading at scale.
NAGA’s proprietary technology will leverage Capex existing client’s base with the offering of social trading, payment services as well as spot Crypto, thereby increasing lifetime value of the clients of the platform and therefore yielding additional profits. Overall, it is expected that the business combination will be able to save up to USD $10 million in annual operating expenses, such as regulatory overheads, headcount, technology and costs of goods sold (COGS). Joint marketing efforts will lead to higher bidding power on paid traffic and higher domain and platform authority expected to improve client acquisition cost significantly as well as its brand reputation.
The transaction secures extension of the repayment of NAGA’s current USD $5 million loan to the end of 2025, further improves liquidity for the immediate term for growth and is supported by NAGA’s largest shareholders.
In a combination of direct cash injections and the contribution of 100% of Capex.com shares to NAGA, the new investor will become the majority shareholder in the combined entity as noted above, which will retain the brand name NAGA. Octavian Patrascu is set to become the new group CEO following this cash injection.
Octavian Patrascu, the incoming Group CEO of the combined entities, commented,
“I am truly excited about this union as in today’s market, consolidation can help accelerate our roadmap, objectives and give us the dimension needed for true innovation. NAGA and Capex.com have a multitude of synergies and that is why I am confidently investing my own money in this transaction. I believe we can reach our targets and am ready to embrace this new challenge to set a new benchmark in the industry.”
Michael Milonas, the CEO of NAGA, added,
“I am particularly pleased with this development as it unlocks value under the leadership of Octavian and becomes the cornerstone of NAGAs future success, based on three pillars. In terms of cost and revenue synergies, which will lead to a positive EBITA impact immediately. In terms of strategic synergies, the combined entity will have a much bigger footprint regarding users, licenses, and technology, which will lead to scaling the business in the medium term as well as the long term. And lastly, joint leadership is convinced about a strong cultural integration. This is the foundation of a perfect match, and I am excited about what the future holds for NAGA.”
New financial projections and research coverage for the joint group will be published in due course. The merger is expected to be completed in Q2 2024 and is subject to regulatory approvals and customary closing conditions, primarily regulatory change of control which is envisioned within a time frame of 3 to 6 months. The parties said they are committed to pursue an uplisting to NASDAQ as reported to the market in late 2021 by NAGA, which has been halted due to unfavorable market conditions. Potential interest by underwriters is to be assessed in the months following closing.
