Retail FX and CFD brokers NAGA Group and Capex.com have announced a merger between the two groups, which will see Capex.com shareholders become majority owners of the combined company.
While the merger is expected to close only in Q2 2024 (and is subject to customary closing conditions, notably regulatory approval), the combined NAGA-Capex.com operations represent combined sales of approximately US$90 million ($40 million of which is attributable to Capex.com and approximately $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 $15 million in equity in the business combination, bringing fresh cash to publicly traded NAGA, which has struggled this year to refinance its obligations after heavy losses in 2022, which were reduced in first half of 2023.
The combination will take place through a Reverse Merger between publicly traded The NAGA Group AG (ETR:N4G) and privately held Key Way Group Ltd, which manages the Capex.com brand. NAGA Group will issue approximately 170 million new NAGA Group shares to Key Way Group shareholders so that Key West / Capex.com shareholders will own approximately 75% of the combined, publicly traded company. The exact number of new shares and the resulting share ratios will be determined based on a valuation report by an international auditing firm.
The parties also agreed that the managing partner of Key Way Group, Octavian Patrascu, will be appointed Chairman of the Board of Directors of The NAGA Group AG. The transaction structure also includes the planned issuance of stock 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 duration of 12 months and a total issue volume of up to 8.2 million euros, which will be offered to shareholders for subscription. The subscription offer for the convertible bond is scheduled to start in December 2023. The main shareholders of The NAGA Group AG will waive their subscription rights in favor of individual shareholders of the Key Way Group, and the latter (i.e. Octavian Patrascu personally) intend to subscribe for convertible bonds up to a volume equivalent to USD 9 million, provided no subscription rights are exercised.
Capex.com is an internationally regulated, fast growing (80% CAGR over the last three years) retail FX/CFD broker licensed in Europe and Abu Dhabi. Capex claims an active user base (by 2023) of over 60,000 and claims growth of over 15,000 monthly signups on average. The company has raised $31 million in equity funding so far, and its revenue has grown rapidly over the past three years from revenue of $26 million in 2021 to an estimated $40 million in 2023, despite what the company called a very challenging environment market.
Capex operates under more than five licences, including the ADGM license in Abu-Dhabi. The company is led by founder and CEO Octavian Patrascu, who previously led the development of CFDs broker Markets.com (2010-2015).
The joint entities will operate 8 licenses worldwide and this year are estimated to generate combined revenue of USD 90 million with EBITDA of USD 6.5 million. The combined annual trading volume in 2023 will be approximately US$300 billion, and the combined platforms will host 1.5 million users from more than 100 countries, expecting to reach 5 million users by 2025. With the joint licenses, NAGA and Capex can operate in more than 50 countries, including the fast-growing MENA region, where NAGA will be able to develop innovative social commerce at scale.
NAGA’s proprietary technology will leverage the existing Capex customer base by offering social transactions, payment services as well as spot Crypto, thereby increasing the lifetime value of the platform’s customers and therefore generating additional profits. Overall, it is expected that the business combination will be able to save up to $10 million in annual operating expenses, including regulatory overhead, headcount, technology and cost of goods sold (COGS). Joint marketing efforts will result in higher bid power in paid traffic and higher domain and platform authority expected to significantly improve customer acquisition costs as well as its brand reputation.
The transaction extends the repayment of NAGA’s current $5 million loan until the end of 2025, further improves liquidity for immediate growth and is supported by NAGA’s largest shareholders.
Combined with direct cash contributions and the contribution of 100% of Capex.com’s shares to NAGA, the new investor will become the majority shareholder of the combined entity, as mentioned above, which will retain the NAGA brand. Octavian Patrascu is to become the new CEO of the group after this cash injection.
Octavian Patrascu, the incoming Group CEO of the combined entities, commented:
“I’m really excited about this union, as in today’s market, the integration can help accelerate our roadmap, our goals and give us the dimension needed for true innovation. NAGA and Capex.com have a lot of synergies and that is why I am confident investing my own money in this trade. I believe we can achieve our goals and I am ready to take on this new challenge to set a new benchmark in the industry.”
Michael Mylonas, CEO of NAGA, added:
“I am particularly pleased with this development as it unlocks value under Octavian’s leadership and becomes the cornerstone of NAGA’s future success, built 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 larger footprint in terms of users, licenses and technology, which will scale the business in both the medium and long term. And finally, the joint leadership is convinced of a strong cultural integration. This is the foundation of a perfect match and I’m excited for what the future holds for NAGA.”
New financial forecasts and research coverage for the joint team will be published in due course. The merger is expected to be completed in the 2nd quarter of 2024 and is subject to regulatory approvals and customary closing conditions, primarily a regulatory change of control expected within 3 to 6 months. The parties said they are committed to continuing the NASDAQ listing as reported to the market in late 2021 by NAGA, which has been halted due to adverse market conditions. Potential interest from contractors will be assessed in the months following closing.