Market Insights and Particularities of Crypto M&A

Transcript

Cool. Good morning everyone. Uh thanks for taking the time to listen in on what I find very interesting topic uh crypto M&A and it's good to see actually so many people here but it obviously raises a question of how many people have been involved in a transaction in their lives uh already like who has ever been if you can give me a quick sign of hands on either buying a company or selling a company. Okay, so that's quite a few. We're speaking as an basically with expert group here. That's great. So my name is Carl. I'm one of the co-founders at Arteta. Uh me and JP who you'll get to meet in 10 minutes. Uh we worked together at Blackstone uh for a good amount of years in the private equity group before basically starting Arta to bring institutional financial services

to crypto founders and management teams. And today we briefly want to talk about one where are we in uh basically M&A world today? What does the market look like? uh then also dive deeper into the key segments that we see a lot of activity in and also explain a bit why before then we want to end the note on very interesting topic which we find or potentially see as a catalyst for M&A volumes in the next decade which is onchain M&A on ARA briefly um this talk is obviously mainly around M&A but some of you may may know us also for our work in the secondary space where we work a lot with founders on brokering uh equity and token transactions and also for our work

as delegates in some key ecosystems. We've yeah as said started this three and a half years ago. Uh today we're 15 people around the globe have established ourselves as the number one sellite adviser for crypto founders and yeah it's been a good journey so far. Um as you can see bunch of work been done to date but yeah I think this slide shows it all. We're just in the beginning. Um, coming out of a yeah, as you know, protected bare market, we've seen M&A volumes on the rise ever since the end of 2023. And to nobody's surprise, M&A volumes in 2025 will reach um or will basically be the highest volume number ever in crypto. And that by an order of

magnitude, we've seen the most uh billion dollar transactions in crypto this year already. Um there have been one or two before that. and we've already had four this year. So, um why is that? One, we're obviously in in a um more bullish territory, but also significant regulatory tailwinds from the US have puffed the way I think also for institutional players to become more active and uh you know that forces them to think about buy versus build as they think about growth and a lot of them are now also putting the putting the button on on the buy side.

Where specifically do they do that? So we've identified four key verticals for Asetarita. One is clearly trading infrastructure. So those would be exchanges, market makers, prime brokers. You have a lot of activity in staking um you know we'll get to that payments to nobody's surprise. And then lastly and this is where we want to do a bit of a deep dive because it's a bit less covered is onchain M&A. So uh let me actually go through trading infrastructure first. Here you will have seen the announcement of Coinbase acquiring Derbit of uh basically uh increasing their product offer also in the derivatives and structural product side. Uh you've seen Robin Hood

acquiring Bitstamp to increase their licensing footprint around the globe and also add institutional trading capabilities. And then in a third bucket which we think of as geographical expansion or also more broadly international consolidation uh Swiftex has acquired Easy Crypto. Um this is the deal that we worked on. So know the deal quite well. Easy Crypto was the largest crypto exchange in New Zealand and Swiftex is the one of the leading exchanges in Australia has acquired them to obviously consolidate user numbers and creates uh significant synergies between the two businesses but also uh path their way into a much larger international uh exchange player.

Another interesting development that we continue to run into is this move from traditional players not yet actively in crypto. Um basically you know trying to enter the space and all these players today face what we call a buy versus build decision. Uh in the case of Dainci, which is one of the largest uh traditional market makers in Europe, they've decided to acquire the loan book from um a crypto market maker called uh Skynet, which some of you may may have worked with in the past and uh also took on a bunch of their team to now set up a crypto franchise within the organization.

If you look at staking, obviously the rise of proof ofstake networks has brought up u especially in the first phase a group of dedicated pure play staking companies. But that has obviously evolved now into something where a lot of yeah tangential businesses have adjacencies to staking and have over time insourced uh those capabilities. a classical vertical integration that we could have also that we were able to see with soul strategies um acquiring um basically a Solana staker to also uh capture the staking operations internally and don't necessarily have to partner with someone externally. You were able to see that

also with Ian layers acquisitions and generally given how nasonent that space is you see a lot of innovation in that segment and that typically also calls for activity and it's also one place that has become more and more competitive over time so that people now need to consolidate assets need to go onto new networks to be able to find their also differentiation and be able to survive in the long run and this is what we've done actually with uh the sale of French uh validators who have been uh basically a very good franchise for retail and institutional staking delegations and are now part of SW group who have been able to add significant network reach and also staking uh assets under uh under

delegation. Then lastly, if we look at payments, uh this is obviously hottest topic on the street right now. You would have seen Mi taking on iron. Um also given we're in in KHN, one of the leading players in Europe uh when it comes to API uh stable cocoin API checkouts. Um, Rippo back in the days has acquired Mitakaco to also uh, yeah, basically u, you know, gain banking network over here in Europe. Clearly also with a uh, intention to roll out their own stable coin and then establish a strong payment network over here. And um, to nobody's surprise again, Stripe has been one of the key leaders uh, as it comes to stable coin payments adoption. Um the case study is

almost yeah unparalleled in oh I know the co uh two days ago has be gone public on how they want to double down on stable coin payments. They've obviously acquired bridge uh to internalize the uh stablecoin checkout system and have now also uh acquired privy an embedded wallet company to further verticalize uh the value chain that they have internally and with that I want to briefly hand over to my co-founder JP who is uh going to talk to more about the onchain M&A landscape and what we see there.

Awesome. Thank you, Carl. [Applause] It's great to be here uh and give you a bit of an overview now of what we think will be a key driver of M&A activity in the years to come. So Kyle spoke a bit about you know the more traditional M&A part of the industry meaning more centralized equity M&A deals and like everything in crypto we think that also M&A activity is going to move more on chain. So we think there will be more M&A transactions involving protocols, Dows, foundations, um oftent times also involving tokens as part of the consideration or as part of the you know acquired instrument. Um and we've already seen a first sort of wave of um

transactions in uh in the onchain world. Um for for various reasons basically, right? This can be either for for example product expansion. Um it can also be sort of a you know more centralized entity acquiring an onchain protocol. So think of for example centralized exchange now acquiring a DEX or you know a traditional payments company acquiring a decentralized stable coin um or vice versa. Think of you know an L2 blockchain uh at some point acquiring a centralized exchange or a NEO broker to basically you know tap into more regulated business model and um expand the user base. So can go in in

different directions and um I think also across really all all key verticals in the onchain world. Um one of the drivers here is basically the fact that the onchain world is extremely fragmented. So if you look at the number of tokens and this chart on the top basically um tracks all the coin gecko um listed listed coins and this number has actually tripled just over the last few years and you know there's obviously a lot more tokens and meme coins that have evolved emerged in the last few years.

Um so the market is extremely fragmented which also means that capital talent um liquidity is is very um fragmented and distributed across of different ecosystems and projects and so what it means is basically that at some point there will be more consolidation. So think of you know protocols acquiring smaller players in their respective categories or again um acquiring protocols that you know target different audience or different product categories. Um we've seen very similar dynamics actually at play during the com era. Um so in the '9s there were a lot of in that at that time sort of listed

companies equity companies uh that evolved and um actually driving a lot of M&A volume so it has uh increased eight times over those years in the '90s and um we're basically expecting somewhat similar dynamics also in the token and onchain world over the next years. One other key driver is the fact that a lot of these token projects have huge treasuries also in traditional Dreadfire terms. Um some of them you know are in the billions. Um and often times those treasuries are not deployed very efficiently. um maybe only sort of onchain and some some liquid assets, but obviously M&A is a is a great

opportunity and asset class also if you will for for token projects to you know grow their overall business and deploy capital um either in the offchain or onchain world. What's interesting about some token M&A deals and especially in the DA world is that a lot of it is very transparent and public, right? So in a typical M&A process, confidentiality is extremely important and often times ideally nothing is leaked before the official announcement and signing of the transaction. Now in onchain M&A um often times you may have to involve the community. So there has to be some kind of DAO proposal and therefore a lot of

the discussions are actually already public before anything is is signed or somewhat decided it uh and can can therefore also be tracked and we've put together this chart really which shows kind of the number of proposals related to M&A or minority majority deals um which has actually increased quite significantly since the last cycle. I think the last few months we've seen a slight decline which might also be driven by you know just the overall sentiment change in the industry of sort of moving away from the Dow model in in certain instances under the new US administration but overall there's clearly a trend of you know more discussions and proposals around onchain M&A

here you can see a bunch of examples of uh onchain M&A transactions um some of them are very famous you might have heard of the Rari Fay deal. Um, and I think what became clear in many of these instances is that unlike in more traditional M&A deals, for onchain deals, you you're really lacking like, you know, a clear framework and processes. Sometimes there's like regulatory legal questions. So, um, it's a very different process in a lot of ways. Obviously, also the fact that, you know, you need to involve many more stakeholders. It's not only two CEOs who are basically making a decision and maybe involving their corporate development teams and adviserss but um

here you may have you know larger community um that sort of has very strong opinions in some instances and for many of these deals this was actually one of the main problems where essentially there was a huge community backlash um or sort of stakeholders were not really happy with sort of the valuation outcome or the governance changes. So um lot of different dynamics at play here which can make um token M&A deal much more difficult than a traditional more centralized M&A deal. But I think it's also up to the industry really to you know set more standards and define what the processes can look like in such a transaction.

And then I think one uh one example we've worked on here is basically the acquisition of um myo finance by enzyme which is an onchain asset management protocol. They acquired myo finance um basically to expand into the onchain structured product segment. So really a great um opportunity for them to become a one-stop shop for you know their their client base um in DeFi. And this was an all all token deal. So um kind of the equivalent of what in traditional world would be an all stock um M&A transaction.

And another very interesting example we worked on last year was um basically we were mandated by the Abitram DAO to evaluate M&A opportunities for them develop an M&A strategy and I think this was a very exciting um opportunity not only for us but I think for the space more generally and is a great sign of also large Dows and you know um L2s really thinking about M&A. Uh you might have seen some other M&A deals announce deal announcements in the last few months on this but um essentially Avit was also um keen to to explore this. Um we looked into various verticals um evaluated over 50 different categories of what could make sense for an arbitrum

DAO to acquire. I had some great discussions with their st stakeholders. I think one of the key takeaways here again is that you know um to my previous point you need to really define processes. How does a DAO even acquire you know maybe offchain entity? How do they operate them? Um and then what is really strategically the right fit and when is the right time also for such a large DAO to make an acquisition. Obviously for it to be be meaningful it also has to be a big M&A deal. So I think some of these large Dows are really in a position to make you know huge acquisitions um maybe bigger than what we've seen in crypto thus far and so uh it's very great to see that sort of more and more large Dows also

thinking in the same directions and I think we all are very convinced that we're going to see more big M&A deals um might be driven by by some of the ones and the twos in the future. So to wrap up um I think three main key takeaways um from our side. I think first of all as crypto finds more institutional adoption there will have to be more M&A activity just because a lot of especially Treadfi or you know big tech companies that you know haven't really had a crypto roadmap in the last few years now really need to catch up and accelerate their strategy and M&A is a great toolkit for that. Um secondly uh since the onchain world is so fragmented

um across all different metrics we're expecting more and more M&A activity to move onchain um either by centralized acquirers or also decentralized protocols for example and I think the last one and a bit of a hot take from us is uh that we're going to see M&A and IPO deal activity actually outgrow the number of what you know are multi-billion dollar token launches um for for a couple of reasons but um in essence over the last few months already we've seen a bunch of IPOs and multi-billion dollar M&A deals um which are obviously also to some extent then targeting a different type of or tapping into a different type of um you know capital markets participants

um but we really think as the the industry matures uh this is become going to become a very viable exit path and also alternative to a token lounge um for a lot of founders and teams Great. I think that's uh that wraps it up. So, thanks a lot for listening in. Uh feel free to connect if you want to learn more about Arita and what we do. And uh wishing you all a great week in Kh. Is there any questions for our speaker?

Okay. Hi there. I just wanted to ask on the um on the institutional side, we've seen a lot of activity in sort of private credit and particularly massive growth in the sort of credit secondaries market. Do you envisionage anything happening in in any sort of way in the sort of crypto markets would be similar with regards to private credit in crypto? Yeah, less so for now. I would say in general in like sort of a lot of the asset classes in in the traditional world, we haven't really seen an similar sort of surge in activity in crypto. Uh so

private credit, private equity, things like that are still much more nent than for example um yeah even M&A, but certainly sort of you know um equity capital markets activity and token capital markets if you will. So um I think there's going to be a lot more sophistication in terms of debt capital markets um credit activity and uh sort of maybe even private equity uh type of uh asset classes emerging emerging in crypto but for now it's been uh yeah rather a bit under the radar I would say. Thanks.

We have one more question closer to them. Hello, my name is Olga. Thank you very much for your presentation and the presentation of your colleague. I would like to thank you also for the DAO M and report that I read. It was very useful. Thanks. You have talked a lot there and today about your successful transactions and how you did them. My question is did you have any deals that actually did not go through and what were the main reasons for that?

Thank you. Yeah, it's a great question and obviously you tend to talk only about the successes as always. Um there is uh there have been instances uh I think for us but you know for uh other firms and and a lot of founders where a deal would not go through in the end uh for various reasons. Uh one consideration obviously in crypto is is it cyclicality right so in a market downturn it's a lot more difficult to get deals done um valuations coming down there's less capital available to deploy right by strategic acquirers so you know the the general market environment can play a very important role here um secondly obviously in an M&A process uh there's a lot of sort of components that

can really lead to um Yeah, either the buyer or the seller pulling out of a process at some point. Um, you may run an auction process and at the end of the day the bids are not basically meeting the the seller side expectations or the market expectations and so um the other side might walk away from a deal. So there's a lot of um reasons why you know an M&A opportunity can collapse same as in the traditional world right and I think especially with regards to onchain M&A there's a few more risks and factors uh that can play a role here like the community backlash I mentioned and sort of the general governance processes. So um I think really on top of the you know already uh many risk factors that you

have in an M&A transaction in crypto there can be even more so um both for onchain M&A but then also due to the market environment. Okay, thank you very much for our speaker. We will invite the new speaker here. [Applause]