Benzinga - Mergers and acquisitions (M&A) are a classic means of scaling and restructuring businesses. The result of such moves is often a dramatic shift in the overall market situation and the amounts involved in such deals are often truly astronomical. Vodafone Group plc (LON:VOD) paid more than $180 billion for its archrival Mannesmann AG in 1999, American Online (NYSE: AOL) acquired Time Warner for $165 billion in 2000, and Dow Inc. (NYSE: DOW) acquired DuPont for $130 billion in 2015. M&As involving such values have never before been witnessed in the cryptocurrency market, but the prerequisites for a precedent are already beckoning on the horizon. There are telltale signs that we may witness a transaction of similar size already this year. However, before dipping into forecast territory, I’ll take a stroll down memory lane of past mergers and acquisitions within the industry.
First Deals In Crypto Began In 2018 When Bitcoin (CRYPTO: BTC) lost its dubbing of an ominous bubble in 2018, many large players started entering the cryptocurrency market, dragging along with them the first M&As. It was then at the end of February 2018 when Circle, a Goldman Sachs startup focused on mobile payments and cryptocurrencies, acquired the Poloniex exchange for $400 million. “These markets are still in their infancy but they hold enormous promise,” as commented by Circle CEO Jeremy Allaire at the time.
Coinbase Global Inc (NASDAQ: COIN) then bought the Cipher Browser mobile wallet and Earn.com social network. BitGo bought out the Kingdom Trust company, which manages over $12 billion and has more than 100,000 global customers. Cryptocurrency exchange Binance chipped in as well by buying Coinmarketcap for $400 million, making it one of the most discussed deals on the market. According to data provided by the PricewaterhouseCoopers consulting company, the total volume of mergers and acquisitions in 2020 reached around $1.1 billion in volume, up from $481 million in 2019. At the end of 2021, the volume of M&As in the cryptocurrency market had reached $55 billion, a colossal leap from the $1.1 billion mark a year earlier, demonstrating 4,868% growth.
Who’s Buying Whom Along with the growth in volume came an increase in the average size of the transaction per deal. The crypto market has good chances in the next three to five years of breaking the long-standing record of payouts by one giant to another. Although industry players are accustomed to internal market transactions, a deal between a large cryptocurrency company and a major institutional player from the world of Wall Street may come as a surprise of the ambiguous type.
Businesses usually grow stronger through M&As, strengthening their positions and influence in the market. Take for example the purchase of CoinMarketCap by Binance, which finally secured the latter the status of an industry giant. A sensational journalistic investigation later, several crypto companies simultaneously expressed interest in gobbling up Coindesk, though the matter did not develop past the point of interest.
Potential Benefits and Prospects Outweigh Risks The probability of large, fresh transactions will increase as the market stabilizes and the volatility of cryptocurrencies drops to acceptable levels. Be it a media channel or exchange, the value of a crypto company is highly dependent on the capitalization of the cryptocurrency market as a whole. As such, any business that admits the possibility of a sale will bide its time in anticipation of better conditions to up the price tag. The first offer made by Vodafone Group to Mannesmann AG hovered in the $70 billion territory. Later, the parties agreed on $180 billion — more than double the original price. There is a high chance that all currently open merger and acquisition offers will swell in accordance with market growth. Between 2020 and 2022, the Bitget exchange received several purchase offers from different companies. Surprisingly enough, those with bigger amounts came from players well outside the cryptocurrency industry. Financial businesses that do not have a cryptocurrency infrastructure are willing to pay serious money for the business.
Despite the numerous risks, potential buyers are well aware of the prospects of significant incomes that can be made on the cryptocurrency market. The result is a growth in the values of the offers, but business owners are in no hurry to sell, keeping in mind the fact that their companies may be worth much more in the near future. Such circumstances set the stage for the largest merger deals that may step outside the historical values recorded in the cryptocurrency industry.
It seems that mergers between cryptocurrency businesses do not entail the threat of centralization, but rather result in the redistribution of market shares and influence. It may also seem that a potential takeover of the largest player in the cryptocurrency market by a representative of a centralized fiat economy carries great risks for all participants in the market. However, in my opinion, such a transaction may well become a proverbial Trojan horse for the entire cryptocurrency industry, marking the countdown to the demise of classical banking and other centralized economic systems.
Buyers Are Cautious But Brimming with Optimism The FTX exchange’s collapse has spurred potential buyers to look to acquire large crypto companies to deepen their interest in the financial affairs of the businesses they seek to acquire. However, an unhealthy financial situation is not the only danger lurking behind the veil of feigned success.
Imperfect regulation and the need for licensing are also issues that require great attention. In addition, the increased activity of the regulators is making both sides of future transactions jittery. The volatility that follows such actions only adds fuel to the bonfire of uncertainty.
Despite the prevailing sense of gloom, 2023 started off quite well for the market, as the price of BTC increased by 71% since the beginning of the year. It is possible that such a thaw symbolizes the beginning of spring. Should that be the case, potential business buyers need to hurry to close their M&A deals before the crypto summer dawns.
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