The Surge Of Cryptocurrency M&A

Deal activity continues to heat up in the cryptocurrency space as the adoption of crypto becomes more mainstream. Last year was a huge year for cryptocurrencies. In 2021, the price of bitcoin was up 49%, Ether was up 390%, and Dogecoin was up a whopping 1,600%. The M&A market for cryptocurrency soared by nearly 5,000% last year. But this is nothing compared to the activity for M&A of crypto companies.

The total value of global crypto M&A increased from roughly $1.1 billion in 2020 to $55 billion in 2021, with the majority of deals taking place in North America. That is a year-over-year gain of nearly 5,000%. There were 393 total transactions done last year, compared to 118 the previous year. The popularity of SPAC deals played a large role in this fervor, with six crypto firms landing blank-check mergers valued at over $2.7 billion each. Additionally, the average deal size has surged from $52.7 million to $179.7 million. The total value of crypto deals last year grew more than 50 times the total deal value in 2020. Also, larger and more developed crypto companies have been getting more active in M&A, a sign that more industry consolidation is to come in a maturing market.

There are also different kinds of investors getting in on crypto M&A deals. Established crypto and blockchain companies were less active in deals last year, with venture capital, private equity, and hedge funds teaming up to do almost half of all takeovers, while corporations and corporate venture cap firms accounted for 15%.

Even though it's important to keep in mind that the crypto sector can be quite volatile and that regulation is garnering more attention, investors have already seen proof that cryptocurrency can contribute to the creation of other viable business ideas, giving them confidence and leading to more M&A deals. In fact, more regulation could lead to even more M&A transactions by major corporations. But for now, there are still plenty of other trends to watch.

In 2020, 43% of all M&A crypto transactions involved trading companies, dropping to 27% last year. Plus, 92% of deals were related to trading, mining, infrastructure, wallets or payments in 2020, and last year that number fell to 81%.

It is essential to note the youth of the broad cryptocurrency space as a whole. There is plenty of room for innovation, and with that comes more and more M&A targets.

Fundraising is also surging for crypto deals. In 2021, the total value of crypto fundraising soared by 645%, and the average amount is up 143%. This momentum is expected to continue. Many sectors flourished in the crypto sector last year, and 2022 is keeping pace as more new ideas emerge in the space. As the industry matures, existing crypto players will continue to drive investment, expansion, and consolidation. M&A strategies are expected to be employed by later-stage crypto firms to expand both geographically and through products in new markets.

2021 showed us that crypto M&A deals were more diversified and evenly split among different sectors, signs that the industry is seeing broader development than in previous years.

And now in 2022, the crypto market is seeing somewhat of a crash, which could lead to even more M&A deals in the second half of this year and into next year. Public cryptocurrency companies are seeing significantly lower valuations than they were a year ago, opening up the opportunity for non-crypto-native companies to get into the sector at a lower cost.

Another trend is how crypto is being treated contractually in M&A transactions. More and more M&A agreements are including provisions around cryptocurrency as a digital asset. As the crypto sector continues to grow, more crypto deals will have sophisticated terms for the incorporation of crypto holdings, including specific language regarding closing clauses, reps & warranties, and employee compensation. There may also be more non-crypto-sector deals in which crypto is an acquired asset, creating the need to address the currency in contract terms.

M&A in decentralized finance (DeFi) is also expected to surge as the bearish crypto market conditions continue to evolve, and as M&A is an ideal way to expand product lines and look to the long-term big picture for companies in the crypto space.

Digital asset mining is also expected to see increased M&A activity as bitcoin miners look to survive a sell-off in the broader overcrowded market. The competition had increased while margins have shrunk and prices had declined, leaving the companies that are still managing to hang on looking for a lifeline through M&A. Many of the bitcoin mining companies that entered the space when things were good did not have strong balance sheets, and now they are struggling with the cost of capital.

If you own a company in the cryptocurrency market and are looking for an exit or growth strategy, Benchmark International's deal experts would love to hear from you to discuss how we can help you achieve your objectives.

Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com

Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com

Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com

ABOUT BENCHMARK INTERNATIONAL

Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $8.25 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the #1 Sell-side, Privately Owned M&A Advisor in the World by Pitchbook’s Global League Tables.

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