What can Crypto M&A look like in the second half of the year?

Industry watchdogs believe mergers and acquisitions across the cryptocurrency sector could accelerate, as healthier players seek opportunities after the collapse of Three Arrows Capital and Voyager.

Mergers and acquisitions (M & As) in 2021 involving at least one company in the crypto sector have roughly tripled from the 59 moves made in 2020 to 180, according to data from the M&A consulting firm Architect Partners. Such activity in the first half of 2022 slightly exceeded last year’s record pace, when 92 crypto-M&A agreements were made in the course of six months.

Kavita Gupta, founder of Delta Blockchain Fund, said she expects M&A activity to pick up in the second half of the year.

“Many companies may not be able to get through [the current market downturn] depending on how much money they have raised and the resources they have, she told Blockworks. “Like the previous crash, we will see more and more examples of smaller companies with fantastic technology becoming part of larger companies.”

Gupta pointed out that Polygon bought Hermez to create a better privacy solution as an example. The Ethereum scaling platform entered into an agreement to merge with open source zero-knowledge gathering Hermez in August last year.

Gupta reckons that Polygon will have a prominent place on the M&A front in the coming months, along with FTX, Binance and StarkWare – all of which raised significant capital before the downturn.

Sam Bankman-Fried’s deep pockets

FTX, led by crypto-billionaire Sam Bankman-Fried, recently signed a $ 240 million deal to buy troubled cryptocurrency lender BlockFi, in addition to giving it a $ 400 million revolving line of credit.

Early FTX supporter Race Capital recently said that no one other than Bankman-Fried has the ability to win over the crypto market, but others seem eager to try. In May, Ripple CEO Brad Garlinghouse said the company has a strong balance sheet and is looking for potential mergers and acquisitions.

“FTX has certainly played a major role in this, with the stock market noting that it has billions of dollars in cash for this very purpose,” Bryan Hernandez, president and co-founder of Structure, told Blockworks.

“Still, it is unclear how this will play out,” he continued. “For all we know, there are a number of unrest [centralized finance] platforms beyond Celsius, Voyager and BlockFi that may soon signal that they are in such great difficulty that they will be open to acquisitions. “

But Hernandez believes there is concern in the industry about consolidation, noting that the crypto ethos focuses on decentralization, maximum transparency and auditing ability. He described struggles that centralized lenders such as Celsius and BlockFi face as a “gut check”, which requires more decentralized solutions.

How potential acquisitions can be targeted

Companies that are traditionally not involved in cryptocurrency, but who are curious about the industry, are likely targets for acquisitions, according to some.

“I think you’ll see a lot more of a push into the strategic M&A area,” Rob Flaws, special adviser to Baker Botts, told Blockworks in an interview. Lower valuations for cryptocurrencies together with crypto companies can trigger more agreements.

Wrongly noted that positive regulatory action will help in decisions on agreements, pointing to Joe Biden’s executive order on cryptocurrency and recently announced regulatory frameworks in the EU and in Dubai.

“Crypto-asset trading companies that have good balance sheets will see this as an opportunity to buy some startups whose valuations have gone down, but which still have a very strong business model,” said Hernandez.

Other potential buyers

Larger Team-1 companies, such as those operating Avalanche and Solana, “sit on a decent coffin,” noted Delta Blockchains Gupta, and may seek to acquire talent from smaller companies.

But in Gupta’s world, they can face competition from Wall Street loyalists. “This is a great time for Goldman Sachs and JPMorgans in the world – as well as the major players in Web2 such as Google, Microsoft, Twitter and Block – to acquire Web3 technology and spend $ 2-3 million instead of the $ 10 million. dollars they would have paid a few months ago, she said.

Andy Long, CEO of Switzerland-based crypto miner White Rock Management, said the mining area is also ripe for consolidation.

“There are economies of scale that can be achieved in combinations and summaries of miners, and I expect to see more than one public miner make acquisitions to accelerate rollout and realize cost synergies,” Long said. “The exceptionally low current valuations for miners provide opportunities for stock agreements with significant upside when the market picks up again.”

Bitcoin miner HIVE Blockchain said in a statement Thursday that it would look to fund expansion plans “in these challenging times” by selling its current bitcoin and ether production. In contrast, Hut 8 Mining said last week that they would continue to hold their bitcoin.

“Companies with aggressive growth plans will seek to achieve their goals or exceed them by acquiring or combining with miners to add geographic diversity and complete hash rates,” Long said. “I expect them to be looking for low or zero debt units with fleets of last generation miners.”

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