Blockchain M&A Trends Point to a Developing Market

So far, mergers and acquisitions in the blockchain space have been limited; however, since the beginning of 2018, we have witnessed a significant surge in activity. Of all the deals we currently track in our M&A KnowledgeBase under the blockchain 'theme,' 30% took place between 2014 and 2017, while 70% were in 2018 – which reveals a significant uptick in activity and points to a developing market.

Our data shows that a growing number of well-funded blockchain startups are making acquisitions to boost their market positions. These acquisitions come with risks because many of these startups have yet to prove themselves. Nevertheless, rising M&A activity shows that investors believe that future returns will make up for these risks.

Cryptocurrency exchange Coinbase, in particular, has made nine acquisitions between 2014 and 2018 – the latest one being San Francisco-based digital identity startup Distributed Systems. Earlier this year, Coinbase hired former LinkedIn M&A head, Emilie Choi, to run the company's M&A activities, strategic investments and partnerships. Coinbase's primary focus has been on 'acqui-hiring,' which means that it has purchased startups essentially to acquire people in order to fill key positions.

In terms of strategic acquisitions, TRON Foundation, a startup dedicated to building the infrastructure for a truly decentralized Internet, has acquired major peer-to-peer network operator BitTorrent to create the world's largest decentralized ecosystem. We believe that this is a strategic transaction by which TRON expects to grow its user base and spur the adoption of its TRX tokens.

Another example is Lightyear Corporation, a universal payments network leveraging the Stellar open financial protocol, which announced a couple of months ago the acquisition of blockchain startup Chain and the creation of a new entity called Interstellar with which it seeks to accelerate the adoption of blockchain in the corporate world.

Although finance and IT ('general' or 'horizontal') are the leading markets in terms of blockchain M&A, there are a handful of deals that took place specifically in the digital content, media and entertainment space, according to our data. For example, Spotify acquired decentralized database technology provider Mediachain Labs in 2017 and Ticketmaster announced the acquisition of blockchain-enabled mobile ticketing software provider Upgraded Inc in October.

Nevertheless, this industry is not the only one that has identified the potential of blockchain technology, and we should see more M&A diversity in terms of vertical markets – we can find deals in the healthcare sector, for example. Healthcare blockchain startup Health Wizz acquired blockchain-based medical records management and interoperability provider kreateIoT in 2017, and the acquisition of healthcare blockchain startup Dovetail Lab by healthcare IT provider EMIS Group was announced earlier this month.

Regarding geographies where the acquiring companies are headquartered, the leading region is North America (79%), followed by EMEA (16%) and Asia Pacific (4%). When it comes to the location of the target companies, the order remains the same, but the distribution changes – NA 68%, EMEA 27% and APAC 5%. This 'ranking' is consistent with the overall distribution of blockchain vendors and startups in the different regions. North America has currently the largest share on account of the presence of leading market players and investments for the development of blockchain technology. The Middle East, in particular, is likely to adopt blockchain technology fast, with the United Arab Emirates (UAE) leading the way in the region. We also expect APAC to witness significant growth in terms of blockchain technology adoption.