Crypto firms that survived the industry’s steep downturn in 2022 are now engaged in a flurry of dealmaking they hope will better prepare them for the next boom.
The number of mergers and acquisitions among digital-asset firms set a quarterly record in the first three months of the year, according to Architect Partners, an M&A advisory firm that has tracked such activity since 2016. There were 54 transactions in the period, almost 10 percent more than a year earlier.
“Well-funded crypto firms are using this environment to tactically acquire quality assets that scale and bolster their businesses,” said Michael Ashe, head of investment banking at Galaxy Digital, which closed on its $44 million purchase of the GK8 digital-asset custody platform from bankrupt crypto lender Celsius Network in the first quarter. Ashe said he sees deals being funded primarily with equity to preserve cash.
Crypto markets slumped last year amid a plethora of failures of marquee companies including Celsius and digital-asset exchange FTX. Lately, though, they’ve been rallying, with Bitcoin up about 80 percent to almost $30,000 on optimism that the Federal Reserve will eventually ease monetary policy.
Even after recent gains, Bitcoin and many other crypto tokens are still far below their all-time highs reached in late 2021. Meanwhile, digital-asset projects continue to struggle to raise money as venture-capital firms largely avoid the sector. Private crypto financing in the first quarter reached $3 billion, down from $12 billion in the same quarter of last year, per Architect.
“Companies that would have been able to raise capital in a bull market are finding it difficult to do so now and are turning to M&A as an exit,” Ashe said.
The deal tally last quarter surpassed the 53 deals recorded in the fourth quarter of 2021 during the peak of the last crypto boom, according to Architect. The increase is all the more notable because it didn’t include any transactions from special purpose acquisition companies, or SPACs, which were in vogue for several years before fizzling, said Dan Wang, an analyst at Architect.
Infrastructure in Focus
A good chunk of the deals in the first quarter involved crypto infrastructure, which Wang said is currently the most popular use case in the crypto market.
“There’s more money, more activity around the actual applications and the tools and the infrastructure to build those applications.”
Among deals last quarter, Ethereum infrastructure provider ConsenSys acquired blockchain development-tooling platform HAL for technology that will let blockchain developers create better alerts and notifications. Terms weren’t disclosed.
“ConsenSys will continue to be on the lookout for strong acquisition opportunities and is actively tracking” projects, such as those related to security, said David Merin, the company’s head of corporate development. “In our experience, this is the best time in the cycle to augment our capabilities so as to facilitate the next wave of adoption.”
About 65 percent of the mergers and acquisitions last quarter involved one crypto company buying another, according to Architect.
“We’re seeing solid engagement,” said Galaxy’s Ashe, “with an active pipeline of mandates representing over $1 billion in potential transaction value.”
