Crypto exchange Coinsquare Ltd. plans to acquire rival cryptocurrency trading platform CoinSmart Financial Inc. for around $29 million in cash and stock as tokens like bitcoin continue to plummet amid heightened volatility for the digital asset market.
The definitive agreement, announced in joint statements by both Toronto-based companies late Thursday, is expected to close in the fourth quarter of this year. It’s a move that will bring together two of Canada’s largest crypto companies under one roof, giving them a combined total of just over 1 million customers and more than $350 million in total digital assets under custody.
The deal includes an upfront purchase price of $3 million in cash and the issuance of 5,222,222 shares from privately held Coinsquare to CoinSmart, which trades on the NEO Exchange. Coinsquare shares are valued at $5.02 according to the latest financial results from Vancouver-based Mogo Inc., Coinsquare’s largest shareholder.
Additionally, under the agreement, CoinSmart may be eligible to receive approximately $25 million in additional payments from Coinsquare, depending on the future performance of two businesses: CoinSmart’s SmartPay and its over-the-counter (OTC) trading business. . SmartPay is CoinSmart’s digital tool that accepts crypto payments and then converts them to fiat currency for same-day withdrawals via wire transfer to a bank account; while OTC trading allows brokers to buy large amounts of crypto directly from a dealer rather than using a public exchange.
CoinSmart can receive $20 million in cash over the next three years under this SmartPay earnout. And by the end of 2023, under the terms of the agreement, up to 1,100,000 Coinsquare shares can be paid to CoinSmart based on revenue from OTC trading.
Upon completion of the transaction, Coinsquare will assume management of CoinSmart and acquire its operating subsidiary Simply Digital Technologies Inc. However, CoinSmart will hold a nearly 12 percent stake in Coinsquare on a pro forma basis, the company said.
The Canadian Securities Administrators, an umbrella organization for all 13 provincial and territorial securities commissions, first issued guidelines regulating crypto exchanges in early 2021. Since then, regulators have tightened their scrutiny over the crypto industry, but policies from one jurisdiction to the next have largely remained a patchwork quilt across Canada.
Several crypto companies have merged their operations this year as high regulatory costs collided with a global frenzy for cryptocurrencies in general.
Coinsquare’s acquisition of CoinSmart is another step towards nationwide consolidation for the digital asset and blockchain industries. But it also positions Coinsquare in direct competition with another big player: WonderFi Technologies Inc., which has been on an acquisition spree lately and acquired Coinberry Ltd earlier this year. and Bitbuy Technologies Inc., then Blockchain Foundry Inc. in September.
Martin Piszel, Chief Executive Officer at Coinsquare, said that the cryptocurrency market is undergoing “huge changes” right now and that regulators are creating the roadmap for businesses in Canada. “This has led to an ever-increasing cost structure and added complexity to running a viable crypto exchange,” Mr. Piszel said in a statement.
Justin Hartzman, CEO of CoinSmart, believes that a large combined company is best suited for future crypto growth and expansion in Canada. “While the crypto market is in the build-up phase of its life cycle, this transaction will provide the torque needed to be in a favorable position for the next bull run,” said Mr. Hartzman.
On Friday, bitcoin traded for around $18,900, down more than 70 percent from late last year in November and around 6 percent over the past week. Other cryptocurrencies have also fallen, such as Ethereum, which traded around $1,302.
There’s more to come…