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A PricewaterhouseCoopers report has provided clear insight into the nature and value of Mergers and Acquisitions (M&A) in crypto for the year 2021. The analysis released yesterday revealed that the total value of crypto M&A deals in 2021 mirrored the rally in prices, increasing by 4,846%. The average deal size also tripled from $52.7 million to $179.7 million, with most deals occurring in the Americas.
The new report gives credence to PwC’s earlier stance that VCs and pension funds were entering the crypto space and driving prices up. The aggressive nature of their investments saw them pump over $30 billion into crypto, a 445% increase from their 2020 input.
2021 M&A Activity in the Crypto Space
Several interesting areas popped out from the report. The value of M&A grew astronomically alongside the average deal size, which increased by 3x. The figures recorded came about due to an increase in the number of M&A deals. In 2021, the total number of documented deals were 393, a significant increase from 118 in 2020 and 125 in 2019.
Also, the top 10 M&A deals in 2021 saw a significant increase in value, with several appraised at over $1 billion, compared to none in 2020. This resulted from more prominent and more developed crypto companies becoming more active in M&A, signifying a growing maturity and consolidation within the industry.
Secondly, M&A deals in the year under review were much more diversified and evenly split across different sectors. This contrasts with previous years when most activities focused on trading services such as exchanges and trading platforms. The wide range of partnerships across industries demonstrates the widespread adoption of crypto across the board.
Likewise, the diversity in the various sectors also mirrors the geographical diversity of the investments. Unlike previous years, Crypto M&A transaction activity moved back to the US., with 51% of deals occurring in this jurisdiction, up from 41% in 2020. However, the total value of deals in the EMEA (Europe, the Middle East, and Africa) region trumped the Americas, despite only accounting for 33% of total M&As.
Thirdly, traditional VC firms and incubators took over from crypto and blockchain companies as the most significant source of M&As. With a 24% share of all deals, VC’s were able to see off competition from other investors such as private investors, tech companies and startups, hedge funds and others.
Finally, 2021 saw the unprecedented use of Special-Purpose Acquisition Companies (SPAC) as a means of accessing capital markets. SPACs, which raised more money in 2021 than any other year, accounted for four of the top ten M&As. The total combined value of the SPAC deals was $19.4 billion.
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SPAC Deals Slow Down – What’s Next?
SPACs, which used to be a quick and convenient way to access new capital markets, have seen a gradual reduction in use. Although considered an intelligent IPO (Initial Public offering) strategy, they have since lost their appeal to companies.
More recent SPAC deals have been cancelled despite several notable companies like Virgin Galactic (SPCE), DraftKings, and Hims & Hers Health adopting it. Acorns, BBQGuys, and ServiceMax all pulled out of SPAC deals in 2021. By comparison, only seven SPAC agreements were cancelled in 2020. In total, 17 SPAC mergers worth $37.2 billion were terminated in late 2021 and early 2022.
This gradual slowdown in SPACs could reflect the future of mergers and acquisitions in the crypto space in the year 2022. Both saw explosive growth in 2021, with interest rates low and investors seeking risky assets. Now however, interest rates are set to rise, with investors avoiding risk-heavy assets.
Overall however, the level of investments in crypto, as seen in the PwC report, points to a maturing industry. The ecosystem is poised to witness rapid evolution and even more adoption with interest from various investors as more institutional funds flow in.
Do you think VCs will be the dominant crypto investor for the foreseeable future? Let us know your thoughts in the comments below.