Forge Global: Schwab's $660M Bet on Private Shares - A Reality Check
Charles Schwab's agreement to acquire Forge Global for $660 million – a 72% premium over Forge's last closing price – is raising eyebrows. Forge's stock jumped 65% on the news, continuing a year where it's already up 87%. This begs the question: is Schwab getting a deal, or buying into hype?
The Allure of Private Markets
The narrative is clear: demand for private market access is booming. Major players like Morgan Stanley (which acquired EquityZen last month) are scrambling to offer clients access to pre-IPO shares. The reasoning? Companies like OpenAI and SpaceX boast valuations rivaling established S&P 500 giants. Investors, it seems, want a piece of the (private) pie.
But let's dissect that "demand." Forge Global facilitated $17 billion in private share transactions. Sounds impressive, until you compare it to Schwab's $11.6 trillion in client assets under management. That $17 billion? It's a mere 0.15% of Schwab's total AUM. (A rounding error, essentially.) Is the potential revenue from facilitating private share trading really worth the $660 million acquisition cost?
Consider this: Forge went public in 2021 via a SPAC. SPACs, as a rule, are rarely good news for long-term investors. (Just look at the performance of most SPAC-backed companies post-merger.) Forge's journey, culminating in a sale at a premium after reports of being "up for sale," smacks of a pre-planned exit strategy, not sustainable growth.
The Premium Puzzle
The 72% premium Schwab is paying is the real head-scratcher. Forge's stock price has been volatile, fueled by takeover rumors. It is up 87% this year, but that doesn’t mean it's fundamentally sound. What specific synergies or growth opportunities does Schwab see that justify such a significant premium? Details on why that decision was made remain scarce, but the impact is clear. Charles Schwab to buy private shares platform Forge Global in $660 million deal - CNBC
I've looked at hundreds of these filings, and this particular premium feels… inflated. Is Schwab simply afraid of missing out on the "private market boom," or is there a deeper strategic rationale at play? It's possible Schwab has internal projections showing massive growth in private market interest from its high-net-worth clients. But if so, they aren't sharing those numbers publicly.
The other possibility is that Schwab is less interested in Forge's existing business and more interested in its technology or infrastructure. Perhaps they believe that Forge's platform can be integrated into Schwab's existing systems to offer a more seamless private market experience. However, even in this scenario, a 72% premium seems excessive. What proprietary technology does Forge possess that Schwab couldn't build or acquire elsewhere for less?
This Smells Like FOMO
Schwab's move feels less like a calculated investment and more like a fear-of-missing-out (FOMO) play. The private market narrative is compelling, but the numbers don't necessarily support the hype. Time will tell if this acquisition proves to be a shrewd strategic move or a costly overreaction.
