Mergers and acquisitions (M&A) in the crypto industry has surged in the past few years. Companies have resorted to M&A with the aim to combine resources, build synergy, and realign paths toward the same goals.
Looking at the Crypto M&A history, many of the investor companies enter into M&A to acquire crypto start-ups and get into the business. Human resources were so valuable that acqui-hiring — a coined term to describe acquisition by hiring employees — has remarkably surfaced as the new most popular type of M&A in the crypto space.
What is M&A?
Mergers and acquisitions (M&A), as defined in the business landscape, pertains to the process of combining independent entities into one company. M&A exists in the area of corporate finances, management, and strategy dealing with purchasing and/or joining with other companies for mutually beneficial reasons.
M&A actually played a crucial part in building business empires that we know today. And many successful conglomerate companies have emerged from M&A strategies. M&A has long been existent as a viable solution and strategy for an established business to expand reach and resources.
Birth of Crypto M&A: Golden Year of Crypto
In a span of seven years, companies successfully signed about 400 crypto M&A deals. In 2018 alone, records accounted for about 162 M&A transactions. A year after, less than 100 deals were forecasted, as visualized on the chart below.
As far as history goes, 2018 still serves as the golden year for cryptocurrencies. 2018 became the year when digital currencies garnered a great amount of attention. In particular, this is when Bitcoin (BTC) rallied its price beyond $20,000.
Based on Tokendata’s in-depth analysis of crypto M&A, there has been an evident correlation between crypto prices and the industry sentiment. Though the industry is extremely volatile, the monthly activity heightened in early 2018 as a result of the dramatic rise in BTC’s price.
Since 2013, the estimated total deal value amounted to $4 billion; with $2.8 billion of M&A activity recorded in 2018 and $700 million in 2019. Analysts said that these impressive figures are still relatively small. Especially when compared to the total value of cryptocurrency networks worth over $200 billion.
However, this is reasonable as the industry is still in its early phase. Most crypto companies are still less than 5 years old. Furthermore, a significant number of initial public offerings (IPOs) will not emerge anytime soon.
PwC Analysis also illustrated the types of M&A deals that occurred across the crypto industry. The chart below presents count by sector, showing a major drop in M&A deals in 2019.
In 2018, most deals relate to mining businesses (28%), followed by deals enhancing blockchain infrastructure (20%). However, the ‘Other’ categories (19%) which pool in media, research, and consulting firms in one recorded the most M&A deals in 2019.
Accordingly, trading infrastructure providers — which also refers to crypto exchanges — account for about 18% of mergers. Finally, blockchain infrastructure development company deals went down to 17% from the previous 20%.
Crypto M&A: Strategic and Financial M&A
Every merger underlies a progressive drive for involved parties to gain financially or strategically. To better classify the reason for M&A deals that occurred within the industry, Tokendata subdivided deal types into two main categories: financial M&A and strategic M&A.
In the subdivision, the strategic M&A includes acqui-hire (acquisition through hiring), technology tuck-in, horizontal or vertical merger, and diversification deals. On the other hand, financial M&A consists of leveraged buy-outs, reverse mergers, and portfolio investment deals.
As visualized on the graph below, financial M&A surpassed strategic M&A in 2017. According to analysts, many acquisitions cases consist of non-crypto companies entering the crypto industry by acquiring small cryptocurrency startups and reverse mergers, in which private crypto companies acquired listed shell-companies.
Nevertheless, there are more strategic M&A records than its counterpart starting in 2018. However, the disparity between the two widens when strategic M&A widens outnumber the total deal activity — way over the figures of financial M&A deals.
Crypto Exchanges Drive M&A Deals in the Crypto Industry
Coinbase is tagged as the ‘M&A powerhouse’ with 16 recorded acquisitions. Based on the records, the company’s acquisition account mainly consists of acqui-hires and technology buyouts.
Moreover, Coinbase is another key player involved in the strategic M&A race. The company has been aggressive in hunting talents and acquiring technology resources. Despite that, Coinbase was only able to succeed in two major acquisitions: Earn.com ($100 million) and Xapo’s ($55 million) custody business.
Additionally, in 2019, Coinbase bought the $8 billion-valued crypto business Blockspring. This San Francisco-based startup enables developers to collect and process data from application program interfaces (API).
Based on a research analysis, three crypto exchanges led other blockchain firms in terms of M&A deals. By looking at the graph below, we can easily distinguish the involved sector in the deals by color legend.
Binance and Kraken are tied in second place with 10 closed deals each. One of the notable acquisition deals made by Kraken is the $100 million worth deal for Cryptofacilities, a regulated cryptocurrency derivatives exchange based in the UK. Although both company mergers are both operating traditionally, they are relevant from a tokenized perspective.
One of the most prominent platforms, CoinMarketCap (CMC), is part of the ten successful acquisitions of Binance. Other public acquisitions made by the crypto company include the Trust Wallet, JEX, and WazirX. Binance also has other significant investments in other crypto companies and partnerships that have the same strategic effects as M&A.
Interestingly, strategic M&As have dominated the M&A scene. The disparity between strategic and financial M&As became evident in 2019. Among the notable strategic M&A deals done were Facebook acqui-hiring Chainspace, a blockchain startup, and crypto exchange Kraken acquiring Crypto Facilities for $100 million.
Then, Consensys lags far behind by four signed deals; followed by Ripple and Tron which recorded 3 closed deals each. The remaining companies on the list have a maximum of 2 successful merger deals individually.
The Token Mergers
Building synergies doesn’t only apply to business mergers. Crypto M&A also includes token mergers. It was never easy to merge currencies in our current financial system, but in crypto, it is technically possible.
In 2019, token mergers recorded their first cases. Following the initial coin offering ICO and token-sale boom of 2017. After a number of overfunded crypto projects struggled with traction, merging with one another became a viable solution to continue operations. Here are some of the pioneer token mergers:
- TRONAce and TRONDice are two gambling decentralized applications (DApps) operating on the TRON blockchain. Each has its own native tokens. In April 2019, TRONAce announced that it would acquire TRONDice. TRONDice tokens were eventually swapped and exist as TRONAce tokens today.
- Singapore-based exchange COSS and crypto wallet ARAX also merged in April 2019. Both companies held an ICO and through issuing tokens they were able to raise funds. All COSS and ARAX token holders have swapped their original tokens to the new token native to the merged entity.
In 2007, the industry was able to gather an enormous capital fund to fuel budding rookie companies. However, when the market situation presented tough challenges for aspiring crypto start-ups during the following year, Crypto M&A became inevitable to withstand the uncertain and volatile economy.
To strengthen the foundation of crypto companies in an emerging sector, some resorted to Crypto M&A to gather financial resources and fill in the gaps in the lack of blockchain experts. This method also served as a doorway for many established non-blockchain-based institutions to easily and instantly enter the crypto and blockchain industry.
Crypto, with its hype driving market movements. is a volatile environment. For instance, Initial Coin Offerings (ICOs) was the first and foremost trend in the industry. Due to some issues, Initial Exchange Offering (IEO), and Security Token Offering (STO) arose as enhanced models of ICO. Now, Decentralized Finance (DeFi) has stepped in and is making huge waves in the crypto market.
The DeFi market somehow shares a similar pattern in the ICO boom; in terms of encouraging a lot of people to invest in cryptocurrency. Currently, DeFi is heavily trending and its popularity is still not waning as more and more DeFi projects are being launched.
Like ICOs, DeFi has raised an impetus that fuels big movements and crypto investments. And only time will reveal whether DeFi projects would see the need to merge or be acquired.
The benefits of Crypto M&A are yet to be realized for the current DeFi assets but the potential exists.