Beyond the Headlines: The Potential of Crypto Technology

Published March 2, 2023 | 3 min listen

Crypto challenges aside, blockchain technology has become an attractive and unexpected M&A target. How will regulation and technology adoption impact deal activity?

Larry Grafstein: The collapse of FTX was very painful for some people who lost money, but at the same time, it hasn’t fed its way through to create a system-wide financial crisis.

Jason Gurandiano: Crypto has seized the imagination, given the headlines. But what gets lost is that there is a fundamental underlying technology that is going to change the way we transact – across consumer to consumer, business to consumer, and business to business.

The real value is going to happen in leveraging that decentralized and distributed ledger technology to revolutionize a number of friction points that exist, not just in financial services but across industries. For example, tracking carbon emissions through the blockchain on behalf of energy companies.

Larry Grafstein: Those of us that work in finance, those who deal with documents, people that work in trade and supply chains – we can all see the room for efficiency in blockchain. The reduction of friction cost is just so massive.

The effects of regulation on cryptocurrency M&A

Jason Gurandiano: I am cautious in the near term around crypto, especially from an M&A perspective, because I think the bad actors need to be flushed out of the system, and that seems to be happening. I do believe regulation will be the best thing to happen to crypto.

Vito Sperduto: There will be transactions that occur because of greater regulation. Maybe the smaller companies that don’t have the ability to comply with that regulation sell to a larger party that has the tools in place for that compliance. There might also be situations where you’re buying an asset that helps you comply.

“Crypto has seized the imagination…but what gets lost is the fundamental underlying technology that is going to change the way we transact.”

Jason Gurandiano, Head of US Technology Investment Banking and Global Fintech, RBC Capital Markets


Valuations and opportunities in the crypto sector

Jason Gurandiano: We haven’t seen as much activity in crypto M&A as one would expect. Given how frothy the crypto market was, companies could basically set their price and people would just sign up; we saw that play out on to the negative with a number of investors getting burned. Also, a lot of valuations were almost viewed as levered plays on the price of the underlying coin – not true price discovery, but a way to play bitcoin without buying bitcoin.

Vito Sperduto: The valuations of anything crypto-related have declined much more than the overall market. So there are opportunities to pick up assets that have had some significant investment and that are, in some people’s view, undervalued today.

Jason Gurandiano: What I think will provide the building blocks for M&A in crypto is what I’ll call the ‘picks and shovel’ companies – data and analytics, risk and compliance. Once those start to season and mature, and we see real price discovery, I think that’s going to lead to a wave of activity as people really understand the value proposition.

“There are opportunities to pick up [crypto] assets that have had some significant investment.”

Vito Sperduto, Co-Head, Global M&A, RBC Capital Markets


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The prospects for tech M&A

Larry Grafstein: Software M&A has been remarkably resilient. We see a continued appetite to invest in the sector, as well as the competitive pressures that companies face to stay ahead of the game. The consistency of tech M&A, even through a tough valuation cycle, is pretty impressive by historical standards.

Jason Gurandiano: I feel quite bullish on the prospects for tech M&A. The IPO market remains challenged, which will probably be one of the biggest catalysts for further M&A. The one factor that could pour a real accelerant onto the M&A market is the functionality of the debt markets.

“The consistency of tech M&A, even through a tough valuation cycle, is pretty impressive by historical standards.”

Larry Grafstein, Deputy Chairman, Global Investment Banking, RBC Capital Markets


Outlook for a rebound in M&A generally

Vito Sperduto: Conditions are improving faster than we expected, even at the end of last year. I think there’s a belief that a recession, if it occurs, is going to be shorter and shallower. As a result, we’re seeing dialogues accelerate among our clients in terms of transactions they’re considering. There’s a very good case for 10% to 15% growth in M&A volumes this year relative to ’22.

Larry Grafstein: The indispensable ingredient that we always discuss is confidence. Things are at a delicate point right now with the Fed and the economy. There is still probably a wait-and-see attitude before we see the return of full-blown confidence. I think that could mean that things get extended into the latter part of ’23, but I agree that the conditions are all there for a snapback.

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