Research

I. Critical Sector Trends

Total Blockchain and Crypto related deals have surged more than 200% at an annualized rate this year (PitchBook). 115 deals involving cryptocurrency or blockchain had been announced, on pace to hit 145 by the end of 2018. The count is up significantly from the 47 total deals completed last year, when bitcoin’s price was surging to almost $20,000.

Merger and acquisition activity for cryptocurrency companies has more than doubled in the past year amid a 54 percent slump in bitcoin prices, according to JMP Securities and data from PitchBook.

With new financial and technological value from blockchain being unlocked, it is no surprise that new capital is flooding into this space as shown by Figure 1 below.

Figure 1: Worldwide Venture Investment TechCrunch

II. Recent Funding Transactions

Venture funds focused on blockchain are raising capital at record rates, i.e. on December 4, 2018, Global Blockchain Ventures announces the launch of $100,000,000 Blockchain technology focused venture fund. Recent investment rounds in blockchain companies include funding for Bitfury, CoinBase and Veem.

III. M&A Transactions

Blockchain is a young industry with many new smaller players. Many large technology players have already acquired a smaller player or put their own money to work to develop their own technology. Most M&A transactions in the sector are relatively small, less than $100 million in transaction size.

Interestingly, as the price of cryptocurrency decreases, M&A activity has increased. The industry is in a “land grab” for innovative technology, access to new markets, intellectual property, and talented employees through M&A.

Recent M&A activity includes Squire Mining purchasing CoinGeek for $45 million, NXMH acquiring Bitstamp for a rumored $400 million, BK Global buying Bithumb for $354 million, Tron acquiring BitTorrent for $140 million and Coinbase acquiring Distributed Systems, Paradex, Earn Global and Cipher Browser.

IV. Parallel Path

Many start-ups are prime targets for the “big” players and additional financing. By choosing a parallel path, seeking financing as well as an acquirer, a blockchain startup should have a choice of a funding term sheet and a letter of intent from an acquirer at the end of the process.

An acquisition can rapidly accelerate the distribution of a company’s products, but the terms of an M&A deal at an early stage can minimize value if not correctly negotiated. Early stage M&A deals often include an earnout, which can be very beneficial or have no value, depending on the terms. Please see Ben Boissevain’s article on earnouts on LinkedIn: How to Structure Effective Earnouts.

Even though the blockchain companies scooped up during mergers and acquisitions are startups in infancy and have yet to prove themselves, many acquirers are willing to look past these issues given that the potential for future returns could far outweigh these risks.