Digital assets will remain in demand – despite the crypto winter
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Recent troubles in the crypto markets are unlikely to see deal-making curtailed. Instead, digital assets, Web3 and Metaverse targets will continue to be sought after as non-tech players look to open new markets.
No assessment of future M&A activity would be complete without considering tech, which for so long has been the biggest sector for deal value and volume.
Despite tech stocks taking a hit in 2022 after a stellar run through the pandemic, we expect appetite for the most sought-after assets – including semiconductors and software – to continue, not least because strategic buyers remain well-capitalised.
Crypto trading platforms set to be active buyers
One interesting area to watch in 2023 will be deal activity around crypto assets, the Metaverse, NFTs and Web3.
In North America, crypto-related M&A volumes in 2022 remained strong – not quite reaching their 2021 peak but higher than in 2020 – and despite the collapse of FTX we expect trading platforms to be among the most active buyers in the months to come.
We are also seeing strong interest from outside the sector with consumer businesses looking to copy the success of brands such as Nike, which has leveraged its acquisition of digital asset developer RTFKT to drive deeper engagement with its customers by packaging virtual sneakers with the sale of physical products.
NFTs continue to interest consumer brands
The desire to replicate these sorts of innovative business models will generate future M&A activity as brands buy in new capabilities, while we also expect tech companies to continue targeting systems integrators who are developing ways to port digital assets between platforms.
The continued trend of using equity as consideration in crypto-related transactions will remain, with tech stocks far below their 52-week highs.
As far as deal structuring is concerned, the continued trend towards using equity as consideration in crypto-related transactions will remain, with tech stocks far below their 52-week highs.
And this is not just a theme we are seeing in public deals – an increasing number of private M&A transactions also feature similar structures.
Here, those hardest hit by the crypto winter – who have less leverage in negotiations – are accepting sale proceeds heavily skewed towards acquirer stock alongside a portion of cash which they are using to pay back their VC investors.
As with other segments of the market, valuations are challenging, with earn-outs used to manage differing expectations.