Let’s start with a non-blockchain example.
In January 2017, Atlassian, a workplace software international provider, acquired Trello, a leading project management app for $425 million. Considering Atlassian’s concentration on the project and team management, the deal with Trello is an obvious win-win. The acquisition makes it possible to enlarge the market and get rid off a powerful competitor at the same time.
Merge — a combination of two companies into one.
Acquisition — a purchase of one company by another.
Value of mergers and acquisitions (M&A) worldwide from 2012 to 2017 (in billion U.S. dollars). Source: statista.com
When companies merge, it means that instead of two brands they become one. Sometimes one company takes a name of the merged one: a well-known example of this is when Colgate bought Palmolive and renamed itself into Colgate Palmolive.
When acquisitions are made, one bigger company buys a smaller one to gather its market share and brand name. Such deals allow businesses to unite financial resources and intellectual potential to develop a product further, reaching bigger audiences.
Mergers and acquisitions will determine the future of blockchain
When a hot-shot technology is developed on the market (like blockchain), you have smaller players on the market who have created a great concept and gathered intellectual resources for its implementation. However, they obviously can’t compete with bigger companies who yet hold bigger market share. Big cats, on the other hand, are constantly looking for disruptive products that would allow them to stay on top of the market.
In blockchain, we see that small startups constantly develop new unused solutions. Big companies, on the other hand, are yet on the sidewalks of the technology, desperately trying to catch up with faster companies. We enter a problem zone: big companies who hold the resources, lack the agility needed to push the technology to the next level, and startup, nevermind their ambition, don’t always have the resources to further develop the concept they already created.
Blockchain needs M&A
When you follow any of currently disruptive technologies, you definitely noticed that no matter how active startups are, those are big companies that really push the innovation forward. Usually, it goes like this:
Startup creates a concept — gets popular at some point — wants to scale but lacks resources — gets merged or acquired by a bigger company — the technology, developed by a startup, either greatly develops or fades away (if M&A weren’t successful).
In last 5–10 years, we’ve seen Google, Apple, Amazon, Facebook investing in almost every disruptive technology there is: AI, cloud storing, big data, Internet of Things, character recognition… except for blockchain.
Why have big companies underestimated blockchain? Certainly, they see both technological and financial value of the innovation and yet don’t bother much to say the first word on the market. We believe the answer lies in the decentralized nature of blockchain. Since its main pillars are privacy and anonymity, GAFA companies whose bread and butter is collecting data and selling ads, based on this information, understand that blockchain opposes the centralized nature of their business models.
Will the situation continue? Most likely, not. Big companies already understand how much of a threat blockchain can be to them, if not managed right. The best way to eliminate competition is through acquisitions and mergers.
We’ve already seen some of their activity in blockchain:
- What’s the deal with Facebook and blockchain
- AWS Blockchain Partners — Accelerating your distributed ledger journey
- Google is adopting blockchain-like technology
Such growing interests of big companies to blockchain indicates that it’s just a question of time till we’ll see a big blockchain merger or acquisition. As for now, startups are very much ahead of tech giants, making deals and creating partnership seems a logical move both for big enterprises that need to catch up and take the leading positions on the market and for startups that are happy to sell their disruptive blockchain innovations.
How will mergers and acquisition influence blockchain technology?
No matter how on-fire a startup is, big companies are yet better equipped to implement innovative concepts, both from technical and PR-perspective. In blockchain world, a startup can develop an interesting innovation and even attract big clients but due to poor communication strategy, no one knows about it. Instead of becoming an international asset, the innovation is preserved within this one little company.
Of course, this lack of technical and communication resources doesn’t influence blockchain positively. Big companies who have all the possibility to execute innovation, stay aside, and startups just can’t handle scaling.
That’s why mergers and acquisition might indeed shed some light to the tunnel. Allowing big companies and ambitious startups to unite their resources towards blockchain innovation, they will push technology forward, while also tremendously scaling the market.
Good thing is, blockchain makes mergers and acquisitions easier
One of many reasons why we see so little blockchain M&A performed is that such process is a huge pain in the neck. When companies opt to a merger or an acquisition, they agree to handle the legal challenges and financial roadblocks that come along with it.
Merging and acquiring requires huge investments, and companies, while not yet obtaining anything, already have to spend money on legal support. At the end of the day, no one comes happy from the process, no matter how you try settling all the differences.
Mergers and acquisitions are always risky. Long-lasting negotiations, delays in obtaining the patent or IP, documentation errors — these are just a few of many hurdles that companies have to overcome in the process. Moreover, they have no guarantee for merger or an acquisition to be successful.
Blockchain can save the day
Decentralized platforms could be an answer that business owners were looking for. The annoying paper documentation can be replaced by smart contracts which will allow business owners to pay for certain actions and results, not for a sales pitch. It minimizes the risk of speculating the fake data about the amount of performed sales or market share since algorithms will check it.
Tokenization allows to quickly make and receive payments without losing commision money. Most importantly, decentralized nature of blockchain protects the intellectual property. By cutting off the mediation of the third party, blockchain doesn’t require you to store information on a centralized server, minimizing the risk of possible data breaches. Company owners have the full control over all the shared information.
Here is just a short list of other challenges that blockchain market place solves.
Difficulties in pricing
Because there is no open marketplace, partners often have unrealistic expectations about the deal. There is no guidance that could assist in pricing the intellectual property or the entire startup which often leads to big pricing errors. With blockchain, the acquisition process will become more transparent.
The necessity to invest in mediation
Since smart contracts are executed automatically, there is no need to pay a third party that will control the compliance with all the agreed conditions.
No connections
For many business owners, the acquisition they are dealing with is often the very first acquisition. The need for guidance and support each step along the way is crucial — yet there is no way to receive it if you don’t have enough connections in the field. Again, open blockchain marketplace solves this issue by creating a community where sellers and buyers will receive support during the process. We’ve already seen Lexit doing it, and it’s only the beginning.
Experts cost a lot of money
Not only guidance is difficult to find but it’s also extremely expensive. As Forbes claims in its 2018 report, M&A advisory fees were higher than 10.2 billion — and this is only for guidance, with no lawyers and PR professionals in the picture. An open blockchain platform solves this issue by making expertise available.
Conclusions
It’s evident that mergers and acquisition are definitely going to become an essential part of blockchain industry. Big companies and startups will unite their forces to develop new innovations, which is a positive tendency (obviously). However, even blockchain-based acquisition yet have a long way to go. Could be, we’d see one or two cases of fraud and financial failures — but after all, no technology is perfect.
The one thing is apparent:
Blockchain needs M&A and M&A need blockchain.
That said, Triggmine, a blockchain marketing automation platform, is planning something big, and it might be connected to mergers and acquisitions.
We’ll tell you more as soon as everything is confirmed so stay tuned for new updates.
