M&A the harbinger of maturity?
The crypto space has undergone considerable changes in the ten years since its inception. From being just a novelty in the financial sector to making waves in scores of industries with a minimum viable product (MVP) on a global platform, crypto and its underlying blockchain technology has grown at an unprecedented pace. The first cryptocurrency Bitcoin was created almost ten years ago, by an anonymous entity known simply as Satoshi Nakamoto, and now there are over 5000 coins are in circulation. In light of this, perhaps the most significant development in the space is how it has transcended the preliminary use-case and permeated into almost every industry sectors. Despite radical developments, the blockchain and crypto space is still in its nascency & is prone to wild fluctuations, exit scams and most critically impacts from the regulatory frameworks. However, mergers and acquisitions (M&A) in the space have taken off and often this is a leading indicator that the market is consolidating. Against this backdrop, here is a teardown of the noteworthy M&A deals in the blockchain and crypto space.
Top six M&A deals by purchase value
Despite the ICO market being in the doldrums in 2018, last year witnessed an impressive 111 M&A deals valued at ~$1 B in total, according to data compiled by InWara.
These are the top six blockbuster deals in terms of funds raised:
Shandong Luyitong Intelligent Electric and Canaan Creative
In June 2016, Shandong Luyitong Intelligent Electric’s acquisition of Caanan creative for a mind-boggling $466 million, takes the cake for the biggest M&A deal in the crypto space. Canaan Creative is a cryptocurrency hardware company that focuses on mining rigs and blockchain servers, while Shandong focuses on electronic equipment manufacturing. The synergy is evident between mining companies and the associated equipment manufacturers – cost cutting, product feedback and accelerated testing could be the base gains from this acquisition for both parties. Ironically, the largest M&A deal in the crypto space concluded between two Chinese companies, where regulatory authorities have outlawed cryptocurrencies.
Circle and Poloniex Exchange
In February 2018, Internet finance company Circle had acquired cryptocurrency exchange Poloniex, for a whopping $400 million. Circle is a payments platform that uses blockchain technology and expanded into crypto investments and trading with Circle invest and Circle trade. With Poloniex, it sought to augment play in the ever-increasing exchange business.
Tron and BitTorrent
In what was probably the most talked about deal in the space, in June 2018, Blockchain juggernaut Tron acquired P2P file sharing platform BitTorrent for a cool $140 million. Tron is a blockchain platform that aims to create a conducive environment for a truly decentralized internet. The strategic rationale behind Tron’s acquisition becomes clear when crunching numbers. BitTorrent has over 150 million monthly active users, and the company claims it moves as much as 40% of the world’s internet traffic – this traffic moving directly onto Tron’s platform will fuel adoption and allow Tron to challenge EOS & Ethereum as the platform of choice. BitTorrent recently conducted an ICO, which concluded in under 15 mins and raised over $7 million.
Coinbase and Earn.com
In April 2018, digital currency exchange Coinbase has acquired networking platform Earn.com for $100 million. In retrospect, Coinbase has been aggressively acquiring blockchain and crypto enterprises, making twelve acquisitions till date. The latest is that of data handling startup Blockspring for an undisclosed amount.
Nexon and Korbit
In September 2017, gaming behemoth Nexon had acquired South Korean cryptocurrency exchange Korbit for a sizeable $80 million. This deal was noteworthy as it marked an established Korean enterprise stepping into the crypto space. Korbit claims to be the world’s first Korean Won cryptocurrency exchange, and it managed to raise as much as $6.5 million in capital from veteran blockchain and crypto investors including Digital Currency Group, Pantera Capital and Softbank Ventures Korea among others. This maybe a data point in the capabilities the veteran VCs have to make a product scalable and provide an opportunity for exit even in the Crypto Space!
Huobi and Pantronics Holdings
In August 2018, blockchain financial services company Huobi had acquired investment holding company Pantronics Holdings for $70 million. This deal allows Huobi, a privately held company to go public without conducting an IPO, through what is known as a reverse IPO.
# of M&A deals, year wise
In the crypto market, the number of M&A deals has consistently surged higher than the previous year. This increased rate of consolidation could indicate that the market is maturing and stabilizing as the market recuperates from the lingering ‘crypto winter’. The subdued macro-environment has kept the pressure on prices and allowed for prudent shopping for deep pocketed players at huge discounts.
# of M&A deals, sector wise till date
The top industry sectors has 183 M&A deals between them, which is akin to over 66% of the total M&A activity in the entire space. Financial services sector leads the pack with 37 M&A deals, akin to ~13.5%. This trend is not surprising as financial services is the leading sector in the ICO space, in terms of sheer number as much as 579 ICOs and in terms of funds raised, over $3.6 billion till date.
A brief view of 2019
So far in 2019, there were some interesting developments heralding further consolidation in the crypto space. The following are the major M&A deals.
- Social media giant Facebook acqui-hired Chainspace, a Blockchain startup founded by researchers at University College of London. Earlier Facebook also revealed plans of introducing a stablecoin on Whatsapp messenger platform to target Indian remittances market.
- Cryptocurrency exchange Kraken has acquired, UK based Crypto Facilities for an amount north of a $100 million, as Kraken revealed in a blog post.
- Mastercard and Visa in the midst of bidding war for cross-border payments platform Earthport according to Reuters.
- Coinbase had acquired, blockchain API platform Blockspring for an undisclosed amount.
- Bakkt acquired certain assets owned by Rosenthal Collins Group.
- EZAdvance acquires Indian digital payments Startup Alconomy, to expand into digital banking.
The number of M&A deals in 2019 is likely to follow the same trend as previous years, expecting further consolidation in the space. This year might also witness tech giants such as Google and Amazon among others to enter the blockchain and crypto space, as the enterprises aim to leverage blockchain technology to increase trust, transparency and security.