Spartan M&A Insights: 2020 Review & 2021 Outlook

Contents:

1. Spartan Group 2020 Review
2. 2020 Crypto M&A Overview
3. Key M&A trends in 2021

Spartan Group: 2020 Review and 2021 Outlook

Spartan Group is Asia’s leading blockchain advisory and digital asset management firm based in Singapore and Hong Kong. We were founded by three Goldman Sachs alumni who are veterans from the banking, hedge fund, venture capital and tech start-up worlds. We offer bespoke advisory services for leading blockchain projects and companies seeking to implement their Asia expansion, fundraising and M&A strategies. In addition, we also invest in blockchain projects via our investment arm.

Founders’ Introduction

2020 was a landmark year for Spartan Group as we advised on, facilitated and closed several notable M&A transactions in the crypto space. The team kicked off the year as advisors to Deribit, a leading global crypto derivatives and options exchange, delivering a successful sale of a sizeable minority stake in the company, and we wrapped up 2020 as sell-side advisors to Blockfolio, the leading crypto portfolio tracking app, on its $150M sale to FTX.

Successfully advising on crypto M&A deals requires extensive M&A experience, a deep passion for crypto and an extensive network in the crypto space. All of these ingredients are critical and Spartan is unique in possessing all three.

We are proud of our 2020 achievements and humbled by the trust placed in us by founders and their investors in handling the financing and sale of their companies and we look forward to an exciting 2021.

Strategic Sale of Deribit Stake

During the course of our sell-side mandate Spartan (i) facilitated a sale of a sizable minority stake in Deribit and (ii) helped to bridge and expand its business and investor network in Asia. As the exclusive advisor on this transaction, the Spartan team ran a competitive auction process that covered:

• Transaction structuring, process tactics and strategy
• Preparation of investor materials, financial model and valuation
• Transaction and process management
• Deal negotiation and closing

Blockfolio Sale to FTX

The second half of 2020 saw Spartan Group partnering with Galaxy Digital as joint sell-side advisors to Blockfolio. This was a highly complex M&A transaction combining cash, shares and tokens as transaction consideration, and we managed to sign and close the transaction on an accelerated timetable. This was the second largest crypto M&A transaction in 2020 and the largest using advisors.

2020 Crypto M&A Overview

• Concerns over the global pandemic failed to dampen investor appetite for acquisitions, as the total deal value in 2020 hit an all-time high of $691M (*1), breaking the $481M mark set in 2019 (*2)
• The sector also recorded the highest number of transactions with a total of 92 deals transacted across the space (*3)
• Acquisitions within the trading & exchange, financial services, blockchain infrastructure sectors remained dominant
• 2020 also saw the US retain its position as the most active region within the M&A space, while Europe accounted for a quarter of the global transaction volume
• Most active acquirers included Binance (5), Consensys (4), BitGo, Galaxy Digital, Metal Pay, SBI Holdings, Securitize, and Voyager Digital Canada (2)

Acquisitions by regions in 2020 (*4)(*5)

Key notable transactions of 2020:

• Binance’s acquisition of data giant Coinmarketcap
• Binance’s $400M (rumoured) acquisition of Coinmarketcap accounted for nearly 30% of the total deal volume recorded in 2020
• The acquisition by the crypto giant is seen to be a strategic move targeted at increasing retail user acquisition from the more than 40M monthly visits that CMC generates
• This milestone transaction is expected to incite buy-side interest towards other independent data providers in the sector

• FTX’s acquisition of portfolio management app Blockfolio
• Derivatives exchange FTX announced its acquisition of the leading crypto portfolio tracking app Blockfolio for $150M in Aug 2020
• Well recognised for its high user engagement across more than 6 million users, Blockfolio will compliment FTX’s ever-expanding suite of products by driving new channels for user adoption and retention
• Spartan was the sell-side advisor to Blockfolio on this transaction

• Coinbase’s acquisition of custody and brokerage service Tagomi
• Coinbase acquired crypto prime broker Tagomi for $90M in May 2020
• The deal showed strong evidence of Coinbase’s intent to gain a foothold within the institutional trading space
• Having acquired Xapo — a large crypto custodian — a year prior, Coinbase is expected to continue its spree of acquisitions leading to its IPO in Q1/Q2 2021

Key M&A trends in 2021

1. 2021 will see a further increase in buy-side interest, larger deal sizes and an entry of Fintech firms among the most active buyers

2021 will be a pivotal year for the crypto M&A landscape. The strong momentum driven by key catalysts from 2H2020 is expected to elevate acquirer interest. While crypto exchanges will remain key acquirers, the sector will anticipate new types of buyers in 2021, with an increased appetite and participation from Fintech and payment-focused enterprises.

• Evidence of crypto adoption across retail payment services, e.g. Paypal, will help increase confidence and expedite synergies between crypto and fintech players
• Digital wallet and payments providers will seek to follow the lead of Square and Revolut, entering the sector through new product launches and partnerships
• Strategic acquisitions of crypto on/off ramps and wallets will continue to take place within key geographic regions with large consumer populations, clear regulations and proven traction of crypto adoption
• Chinese fintech players are expected to make strategic investments, using the sector as an opportunity to expand and strengthen their position in APAC
• Major super apps and ecosystem players will take steps to gain access to new user channels by acquiring and integrating with key crypto applications
• The entry of Fintech players will enhance competition between fintech companies and crypto exchanges to secure key infrastructure players and customers, which in turn will push valuation multiples in M&A transactions higher
• With several key crypto players having raised substantial amounts of capital in 2020 and others with roadmaps of public offerings, appetite and deal sizes within the sector are expected to increase in 2021

2. Traditional financial institutions will look to take a stand in the sector

2H2020 saw increasing participation from bulge bracket banks and asset managers, launching their own crypto services. The entry of these institutions into the crypto sector is expected to catalyse institutional participation, bridging crypto with other core financial services (e.g. asset management, alternative assets, private banking), forcing institutions to take affirmative actions to consolidate their position within the sector.

• Despite the increase in participation, these institutions will remain conservative in their acquisition strategy, shying away from immediate acquisitions of crypto asset managers and brokerages
• However, we expect increased interest towards sectors supporting key operational pillars including custody, data analytics, and security
• Such acquisitions will complement the overarching strategy to set up the required infrastructure for operations while mitigating the legal, regulatory and capital risks associated with the acquisition of large asset managers and brokerages

3. Changes in the regulatory landscape will be a key driver for acquisitions

2020 saw Galaxy Digital and Securitize make strategic acquisitions of licensed entities. Regulation will continue to increase its influence over the sector in 2021.

• The ripple effect from the Financial Action Task Force (FATF) recommendations will force countries to accelerate regulation of local crypto exchanges and onramps
• Consequently, this will motivate transactions on two opposing fronts: 1) from buy-side firms looking to acquire regulated entities and 2) unregulated actors looking for potential exits for their shareholders via mergers or acquisitions
• Regulation has the potential to be one of the key drivers of consolidation within the crypto sector

4. Coinbase’s IPO will be a key macro catalyst for the industry

A successful Coinbase IPO — expected in Q1/Q2 2021 and led by the Spartan founders’ alma mater Goldman Sachs — will set the stage for a new era of public listings amongst crypto firms. It will enable the sector to gain greater legitimacy within global finance, bridging the gap between crypto and traditional investors.

• Global financial regulators will be encouraged and empowered to follow the lead of the SEC, welcoming similar listing in Asia and Europe
• A successful listing and a stable post-IPO share price will give the sector strong affirmation, leading to similar listings by firms such as BlockFi and DCG
• This trend will also play a pivotal role in expanding crypto’s global visibility and consequently increasing the market capitalization of large cap crypto assets through enhanced investor participation

5. Crypto only platforms will seek to offer broader financial products

The growth in crypto market capitalisation in 2021 will see the emergence of a newly minted class of investors looking to diversify their gains and capitalise on opportunities within the broader financial markets. This will incentivise crypto platforms to make strategic acquisitions that will help them expand their suite of financial product offerings.

• With major global exchanges like FTX launching tokenised equity products, crypto investors can now gain exposure into major equity markets within the realms of crypto and blockchain
• Other crypto native platforms are expected to compete on this front, making targeted acquisitions of tokenisation technologies to allow them to capture the value generated from offering a wider range of innovative products

Footnotes

*1 The Block: Digital Assets 2021 Outlook

*2 PWC: 2nd Global Crypto M&A and Fundraising Report

*3, 4, 5 Pitchbook, Spartan Group

Total transaction count & volume might vary, figures above are based off Spartan Group’s internal findings and additional external references listed above.

Disclaimer

This research is for informational purposes only and is not offered or intended to be used as legal, tax, investment or financial advise. This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. Readers should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice.

Contact us at info@spartangroup.io or our Twitter account!