FNG Exclusive… FNG has learned from sources in Israel that social trading focused online broker eToro is getting set to announce a going-public transaction, that will value the company at approximately $10 billion. eToro will apparently eschew the traditional IPO process, and go public via a combination with one or more SPACs.

The company is reportedly finalizing negotiations on terms of the transaction with an existing US-listed SPAC, although that entity has yet to be identified. eToro’s deal is reportedly set to move forward within the next two weeks.

With an increased focus on social/copy trading and crypto investing, eToro added more than 5 million users in 2020 and recently put out a short video (see below) touting that it has crossed the 20 million user mark. From a valuation perspective, that would make each user worth $500 within a $10B market cap for the company, not out-of-line with valuation metrics of other publicly traded Retail FX brokers.

The last objective valuation for eToro, which has raised more than $160 million over the course of its life, came late last year when company shares changed hands in the secondary private market which valued eToro at $2.5 billion. A $10 billion public offering would see a 4x increase in eToro’s valuation in less than four months. If completed as planned, the deal would also instantaneously make eToro the largest publicly traded Retail FX broker by valuation, at more than two times IG’s market cap of $4.3 billion.

eToro was founded by brothers Yoni and Ronen Assia in 2007. Yoni has continued to run the company since as CEO, while Ronen left day-to-day duties as Chief Product Officer at eToro late last year, to join fintech VC firm Team8 Fintech.

The company’s success and rapid growth has been met with some operational issues in recent months, as eToro has somewhat struggled to keep up with the increased new-client-signup flow, and wild swings in trader activity. Last month eToro’s trading system effectively went down for nearly 24 hours, due to a technical glitch. The broker then upped the minimum first deposit for new clients to $1,000, and the minimum copy value to $500. In early January eToro closed out European leveraged crypto traders, as the company became unable to properly hedge highly levered client positions in Bitcoin, ETH and other cryptocurrencies.

eToro has taken other steps to help prepare for an IPO, such as the recent addition of Lord Stanley Fink to its Board.

SPACs (short for “special-purpose acquisition company”), also known as blank check companies, are empty companies taken public with the plan to acquire an existing private business. The SPAC can use both its cash raised and its own shares as currency for an acquisition. The main advantage that a SPAC has in negotiating with a private company (such as eToro) which wants to go public is that the SPAC can basically guarantee the success of the company becoming public on known, negotiated terms. A traditional IPO is a more lengthy and risky proposition, with the company not knowing if market conditions will be conducive once time comes to actually price the IPO.

SPACs have become a very hot product on Wall Street, generating huge fees for both the investment banks underwriting them, and the sponsors. US-listed SPACs raised more than $78 billion across 244 IPOs in 2020 according to data from Refinitiv, and have raised more than half of that amount in just the first two months of 2021.

We expect the company to make a formal announcement in the coming days. Stay tuned to FNG…