M&A activity in the crypto sphere over the past few years has been predominantly limited to the infrastructure sub-sector with exchanges and miners being the most active buyers. As the crypto industry matures, more crypto firms are looking to expand their business operations and product offerings through the M&A route.
With access to capital now becoming harder than it was a couple of years ago, companies generating strong cash flows with their core competencies in a particular business are looking to tap into new business opportunities such as custody by snapping up capital-starved smaller entities with a high potential for growth. Like with traditional M&A, acquisitions can also be driven by the need to address a growing market opportunity fast through bolt-on acquisitions that fit in fairly seamlessly.
Case in point is Kraken’s acquisition of derivatives platform Cryptofacilities
; Although Cryptofacilities had low single digit volumes at the time of the acquisition, it had the requisite regulatory clearances from the UK FCA that was attractive to Kraken, as well as functioning derivative platform, which would be bolted on and revamped as Kraken Futures. Volumes have steadily grown here in line with the overall rapid mushrooming of the crypto derivatives market.
Crypto trading firm Circle went on an acquisition spree in Q3’17 by acquiring crypto exchange Poloniex for $400 million and crowd funding platform SeedInvest for an undisclosed price. Two years on, the company has announced a series of divestitures over the past few months with Poloniex spun out as an independent entity and Circle’s trading desk acquired by Kraken.
Also, it is worth mentioning Facebook’s acquisition of UK startup Chainspace, to support its Libra
As we move in to 2020 expect more consolidation in the more mature crypto businesses such as exchanges; there will also be opportunistic acquisitions of regional players by the US and Chinese majors. Custody is another fast-changing sector, as is security analysis on the blockchain with majors like Chainalysis and Elliptic looking to bolt on specific sets of capabilities or talented teams.