The prolonged cryptocurrency bear market has seen a substantial number of organisations finding new opportunities for growth via consolidations and acquisitions. According to a CNBC report, investors are seeking more and more deals within the blockchain space, even in the face of declining or stagnant crypto prices.
Despite market volatility and a peak-to-trough bitcoin price decline of nearly 70 percent, the past year has witnessed an increase in merger and acquisition activities in the past year as revealed by data from JMP Securities and PitchBook.
According to the data, token values associated with startups have remained correlated to bitcoin rather than actual company value. This is perhaps understandable when taking into account the fact that bitcoin has been in existence for about a decade, which makes it an elder statesman compared to most of the crypto industry.
Speaking to CNBC, Satya Bajpai, a specialist consultant on mergers and acquisitions and head of blockchain and digital assets investment banking at JMP, explained the phenomenon.
In his words:
“Even for great businesses, the value of the token remains correlated to bitcoin, which can create an ideal opportunity for strategic acquirers.”
JMP’s data shows that mergers and acquisitions are becoming a more favoured option versus starting up new companies or divisions from scratch. Over the past year, more than a hundred cryptocurrency or blockchain-related deals have already been announced, with a projection of 145 by the end of 2018. To put that figure in perspective, the equivalent figure for all of 2017 was 47 at a time when the bitcoin price touched $20,000.
Bajpal describes the current strategy adopted by most investors as a “land grab” approach, where they are compelled to buy rather than build. Explaining that building takes quite a long time, he says companies benefit from the expensive option of buying because the acquired entity already has some technology and, often, market-ready products.
In a chat with CNBC, Bajpal stated that that the strategy is also a land grab for talent as the new entity benefits from having employees with business and technical backgrounds because blockchain engineers are not easy to come by. He specifically referenced the example of Coinbase’s acquisition of Earn.com, which saw Earn’s founder and CEO becoming Coinbase’s first-ever CTO.
He also added that users — an essential part of any startup’s assets — are on-boarded almost immediately through an acquisition.
It is not all sunshine and rainbows, however, as mergers and acquisitions have some challenges, too. Given the nascency of the space, valuations are not always simple. Companies that have raised funds through initial coin offering (ICO) listings have to consider the different forms in which new investors are compensated. This gets even more complicated as the new companies are often still in the developmental phase when new offers begin to spring up.
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Last modified: June 14, 2020 11:04 AM UTC