The Anglo File: The eXchange IPO Bets on Boom in Personal Finance

The online service targeted at independent financial advisers hopes to be valued at $600 million when it goes public.
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LONDON -- Internet IPOs in the U.K. are rather like the buses here: There isn't one for ages, and then three come along at once.

The online financial services company

The eXchange

sent out its prospectus Monday to potential investors, saying it plans to finish its book-building process by Aug. 6. Shares will likely begin trading Aug. 13. This means The eXchange's IPO would follow hot on the heels of the IPOs of

Internet service provider


and online

auction house



The valuation of The eXchange, which is being brought public by the powerful team of

Goldman Sachs


Warburg Dillon Read

, would also be third in terms of size, but no less optimistic. Freeserve is hoping to be valued at around $2.2 billion, and QXL at $780 million. The eXchange expects to weigh in at $600 million, based on the midpoint of the 170 to 207 pence-per-share range given in the prospectus.

Clearly such a high valuation "reflects very high projections of their growth," says Nick Gibson, an analyst at the research and investment house


. Indeed, but do these projections bear any relation to reality?

The Information eXchange

Going by The eXchange's claims, it certainly has the market sewn up at the moment. According to a report by

Morgan Stanley Dean Witter

, The eXchange says it holds an 80% share of the market in providing comparative personal financial information to independent financial advisers, or IFAs, in the U.K.

"Its potential competitors are




, neither of which has yet launched its services," Morgan Stanley added. Neither of the start-ups is exchange-listed.

These claims about its market share may not be pure bravado on The eXchange's part. The company began life in 1991 and has since grown into the largest and most actively used online network for personal financial products in the U.K., linking 35 leading financial institutions to approximately 12,000 IFAs.

The eXchange, now owned by

Apax Partners


Barclays Bank

(BCS) - Get Report

, has also branched into offering financial products such as life assurance, pensions and mortgage lending direct to the consumer through its


online service.

The eXchange also did something strange for an Internet company before its flotation: It made an operating profit in 1998 -- albeit all of the $6.3 million is wiped away after $7.5 million in development costs is accounted for. Revenue during the period from information-service charges, end-user subscription fees, professional services, advertising and quotations grew 15.3% to $26 million.

All this is very well, but the company's growth depends on whether citizens of the U.K. and the rest of Europe, where the eXchange says it plans to make acquisitions using some of the IPO proceeds, will become more like Americans in planning for their financial futures.

To Save or Not to Save

On one side, European governments realize that their defined-benefit pension schemes won't be able to support their aging populations in one or two decades. As a result, there appears to be no choice but to force people to take more control of their financial futures and adopt the defined-contribution pension scheme model.

Britons may be getting the online trading bug. The

Association of Private Client Investment Managers and Stockbrokers

says the volume of shares trading over the Internet is doubling every three months and will reach 15% of the retail market at the beginning of next year.

Charles Schwab


announced this week that it will open a customer-service call center in the U.K. to cope with the 500 to 1,000 new customers it is signing up each week.

Alas, most people in the U.K. remain agog with disinterest. According to a survey by

The Motley Fool

, more than six out of 10 Britons are baffled by the jargon used by the financial services industry and more than 65% of the population still does not own shares.

The government is also being forced to rethink its new

Individual Savings Accounts

, or ISAs, which replaced the tax-free schemes (




) introduced by the previous government, following complaints that they were too complicated.

Despite a last-minute rush for Peps and Tessas before they were phased out, figures for April showed that sales of all personal savings plans were down 16% from the previous year.

Most industry watchers feel that the U.K. and the rest of Europe will eventually follow the same path as the U.S. "There's significant potential in this market," says Durlacher's Gibson, "but for The eXchange, it's a question of the speed of uptake."

Unfortunately, companies like The eXchange may find people in the U.K. are as quick to the punch as their mode of public transport.