Winning by acquisition
Winning by acquisition
Insight

Winning by acquisition

Financial services firms are dashing to adopt crypto and blockchain technologies through M&A. Here are some strategies for success.

The future of money is digital.

Cryptocurrency and blockchain are rocking the foundations of financial services, unleashing vast improvements in speed, transparency, efficiency and security.

For industry incumbents, the stakes are high. The winning financial services firms of the future will be those that successfully integrate powerful cryptocurrency and blockchain technologies into their business. Firms that don’t get it right in the near time may find it hard to adopt new technology and compete effectively in the future.

With an eye on the prize, many businesses are turning to M&A to acquire the necessary knowledge and skills swiftly rather than try to build their capabilities in-house. According to a just-released KPMG report, ‘Capitalizing on the crypto and blockchain deal rush”, Crypto M&A shot up 150 percent from 2017 to 2018, and more than doubled in the first half of 2019 compared to the same period a year earlier. The report includes a detailed analysis of 117 cryptocurrency and blockchain transactions in the financial services industry between mid-2017 and mid-2019, studying deal volume, flow, size, type and outcome.

While there is no shortage of deals, however, capitalizing on these them remains a difficult challenge. Buyers need to find ways to valuate start-ups that defy traditional valuation methods. Indeed, those with the expertise to value such companies are typically employed by potential targets, rather than by potential buyers. For many financial institutions, this is unfamiliar and difficult terrain.

Further, incumbents must employ specialized valuation strategies in order to gain clarity on the potential of technologies that have not yet been commercialized on a large scale. They also need to find ways of integrating firms without losing the specialized, hard-to-replace people who made the deal attractive in the first place.

For firms to have the confidence to move forward with a partnership or acquisition, careful, vigilant dealmaking—from evaluation to execution—is critical. Here are some ways incumbent firms can take action, strategically and operationally, to gain the greatest strategic and monetary value from crypto and blockchain M&A.

  1. Identify high potential opportunities: Start by understanding where to apply the new technologies first to get the greatest benefit. Where are there gaps in the business’s current offerings that could be filled with blockchain-based solutions? What services most need improvement? Connecting directly with sales and marketing teams—and even customers—is a great way to uncover areas that would most benefit from technology transformation. Also, review the potential for crypto and blockchain in trading, exchange, payments, remittances and other services.
  2. Invest in valuation analytics: To aid the tricky valuation process, buyers can use a range of new data and visualization tools to make sense of available data on blockchain activity and players. Market, ICO and token trackers help value crypto assets more precisely than manual analysis while visualization tools allow buyers to gain actionable insights from dense and complex data.
  3. Develop a deal strategy: Once incumbent firms identify specific applications for crypto and blockchain technology, they can evaluate what they can build, what they should buy, and with whom they might partner. An effective deal strategy will address all key deal questions, including: how the target will enable growth; how exposed it is to evolving crypto regulations; what is the underlying blockchain type (private or public); what will be the integration challenges and associated costs; and how resilient is the target to disruption.
  4. Establish a crypto innovation hub: A crypto innovation hub can help the management team assess, evaluate and ultimately complete a transaction in this highly technical niche, as well as incubate and govern technology innovation on an ongoing basis. Staffed with blockchain and crypto specialists, an innovation hub can also provide leadership, best practices and support as the company explores, integrates and pilots blockchain solutions.

As the crypto and blockchain market consolidates, mastering M&A will help your firm claim a leadership position in the new world of money. Ready to get started?

Find out more

Visit KPMG’s M&A Strategy practice to download the full report and learn how we help financial services firms develop and execute cryptocurrency and blockchain transactions that drive value to the business.