FNG Exclusive… FNG has learned that virtually all of the public class A shareholders of special purpose acquisition company (SPAC) FG Acquisition Corp (TSE:FGAA.U) have elected to deposit their shares back with the company, and have them redeemed for cash, putting FG’s merger with Retail FX and CFDs broker ThinkMarkets in jeopardy.

FG Acquisition – ThinkMarkets agreement

In mid May 2023 FG Acquisition and ThinkMarkets announced their intention to merge, in a deal that would effectively bring ThinkMarkets public at a valuation of USD $160 million. The transaction would have seen FG’s public class A shareholders own a 43.3% interest in the combined company, while ThinkMarkets’ shareholders would get 53.4%. The SPAC sponsors behind FG Acquisition, led by financier Larry G. Swets Jr., would receive the remaining 3.3%.

However it seems as though the situation has changed.

FG Acquisition returning cash to shareholders

From regulatory filings made in Canada it appears as though 11,398,742 FG class A shares were deposited by shareholders back to the company (out of about 11.5 million shares in total), and will be redeemed by FG at a price of approximately USD $10.21 per share. What that means is that FG is returning about USD $116.3 million in cash to its shareholders, who have elected to get their money back from FG instead of going ahead with the transaction with ThinkMarkets. The redemption has effectively emptied FG’s coffers, leaving FG as a publicly traded shell with virtually no cash.

FG originally sold 11.5 million class A shares in its April 2022 IPO on the Toronto Stock Exchange, raising USD $115 million.

FG looking at new funding

FNG spoke to people close to the situation, and we were informed that FG Acquisition is actively pursuing USD $10-20 million in fresh financing in the form of a PIPE (private investment in public equity), which would presumably allow it to complete the merger. The current merger agreement between FG and ThinkMarkets technically requires FG to have a minimum of USD $10 million in cash.

A senior company source told FNG that he is “very bullish” on a PIPE financing being completed, injecting fresh capital into FG.

However even if FG is successful in finding outside funding in that size range the agreement with ThinkMarkets would likely need to be renegotiated or recalibrated, as FG would be bringing a lot less to the table than the planned USD $115 million (or so) that it had on its balance sheet before the aforementioned shareholder redemption.

FG did manage to get a one-year extension to the July 5, 2023 deadline it was facing to get a deal done or fold up the company, to July 5, 2024, so it has some time to put together a new agreement with new investors and ThinkMarkets.

Reasons FG shareholders wanted their cash back

Why did FG Acquisition’s shareholders reject the deal with ThinkMarkets, and elect to get their cash back?

While the parties tried to “sell” the deal to shareholders as ThinkMarkets being “one of the fastest growing… multi-asset brokerages globally…”,  and “a compelling investment opportunity,” we believe that many shareholders relied on FNG’s analysis of the transaction and ThinkMarkets’ true financial condition in making their decision.

FNG’s exclusive analysis after the transaction was announced unveiled that ThinkMarkets’ revenues had actually declined over the past three years (from 2020-2022), while the company racked up losses totaling more than USD $20 million over the past two years (2021-2022). ThinkMarkets’ bottom-line net loss ballooned from AUD 19.8 million in 2021 to AUD 31 million in 2022. (Think Financial Group Holding Limited, which operates ThinkMarkets, is based in Australia and reports base results in Australian Dollars.)

ThinkMarkets reported that its net assets declined to just AUD 4.1 million at the end of 2022, down from AUD 23.9 million in 2021.

The situation is actually so dire that ThinkMarkets’ auditors LNP Audit & Assurance in Australia issued a “going concern” warning with their 2022 audit opinion, stating that “a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern.” (For some reason these issues were left out of the various press releases announcing the planned transaction.)

What does this mean for ThinkMarkets?

As mentioned above, if ThinkMarkets cannot get the deal done with FG, or inject capital in some other form (and/or cut costs), the company could indeed be facing a “going concern” problem, as their auditors have indicated. ThinkMarkets had cash outflows from operating activities of AUD 9.3 million in 2022, and as noted above its net assets declined to AUD 4.1 million from AUD 23.9 million in 2021. However the company can draw down up to AUD 18.8 million from a funding facility available which has a maximum facility of AUD 44.3 million (as of December 31, 2022).

ThinkMarkets has yet to provide or report any details as to how the first six months of 2023 have gone.

Failed Retail FX/CFD broker IPOs

Another interesting note – given the turn of events with FG and ThinkMarkets and the effective rejection of the deal as presented by FG’s class A shareholders (who are preferring to get their money back), if this agreement doesn’t get to the finish line it will become the third consecutive failure of an attempt by a Retail FX & CFDs broker to go public (all via the SPAC-merger route) in the past two years. Last July Israel based eToro pulled its plans to go public via a merger with a NASDAQ listed SPAC. And in December 2022 Copenhagen based Saxo Bank cancelled its IPO plans via a SPAC merger in Europe, that would have seen Saxo taken public at a roughly €2 billion valuation.

We will continue to follow this story as it unfolds.