Blockchain is quickly shaping out to be an established enterprise technology. There are new technologies and capabilities emerging almost daily, as well as new job market demands to build these new technologies. As new startups spring up to develop and commercialize these new technologies, it's expected that financing will flood the sector and M&A activity will soar.
To explore this exciting and growing investment sector we invited Ben Boissevain of Ascento Capital to present a guest blog on the topic. Ben also partnered with ShareVault to deliver a webinar presentation on blockchain trends, financing and M&A activity this past December. If you would like to watch the webinar playback, click here.
CRITICAL SECTOR TRENDS
Blockchain is at an inflection point, with momentum from exploration to building, financing and acquiring practical business applications. Total blockchain and crypto related deals have surged more than 200% at an annualized rate this year according to data from PitchBook.
Ascento Capital has a current blockchain client in supply chain finance. The incumbents in supply chain finance are realizing how blockchain will fundamentally alter the sector and minimize their role in the sector and thus are interested in acquiring our client. As new blockchain products are built by startups and incumbents seek to catch up, more financing and M&A activity will flood the sector in 2019 and beyond.
Another Ascento Capital client, a crypto wallet company, is seeking financing or to be acquired to accelerate the adoption of its products which make storing, sending, and spending cryptocurrency easy. As more products like crypto wallets make blockchain easier to adopt on a mass scale, such as Stable Coin, a cryptocurrency designed to minimize the price volatility, and Tron, which speeds up and lowers the cost of transactions, the sector will see more financing and M&A activity.
RECENT FUNDING TRANSACTIONS
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.
Recent rounds include funding for Bitfury, CoinBase and Veem.
Table 1: Selected Funding Transactions ($MM)
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.
M&A activity includes NXMH acquiring Bitstamp for a rumored $400 million, BK Global acquiring Bithumb for $354 million, Tron acquiring BitTorrent for $140 million and Coinbase acquiring Distributed Systems, Paradex, Earn Global and Cipher Browser.
Table 2: Selected M&A Transactions ($MM)
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 my article on earnouts on LinkedIn: How to Structure Effective Earnouts. Even though the 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.
To learn more about blockchain M&A trends and fundraising, I'd encourage you to watch the webinar playback, in which I delve into—The State of Blockchain: Trends, Financing and M&A in 2018.
Please do not hesitate to contact Ascento Capital for confidential discussions regarding your company’s growth path forward.
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Ben Boissevain has 30 years of cross border M&A experience and has senior level global connections in the technology sector. He graduated from NYU Law School and started his career at White & Case. His legal training enables him to handle any aspect of contractual negotiations in M&A and capital raising. He garnered investment banking experience at Erste Bank in Vienna and Barclays Bank in New York. Mr. Boissevain regularly speaks on panels on the technology sector and corporate finance and has appeared on TV at Fox News and Bloomberg.