The furor of the 2021 merger and acquisitions frenzy may still be fresh in the memory, but recent economic uncertainty has significantly slowed deal volumes and revenue. In an ecosystem that’s looking for a hero, could blockchain technology provide a much-needed mergers and acquisitions resurgence?
To explore where blockchain can take us, it’s important to acknowledge how far M&A activity has fallen. So far in the 21st Century, 2021’s total deal value of $5.9 trillion is the biggest year on record by a margin of $1.3 trillion over its closes rivals.
While such high volumes are difficult to maintain, a 36% fall in 2022 to $3.8 trillion underlined the exceptional circumstances of the post-Covid revival.
To recapture exceptional M&A performance, we need to look to exceptional technology to supplement a return to form. It’s for this reason that blockchain could provide the shot in the arm that the M&A landscape has been searching for.
One key drawback that blockchain can immediately address is the centralization of traditional mergers and acquisitions. Thanks to smart contracts, blockchain has the power to remove existing friction within mergers and acquisitions to recapture the growth-driven principles of the industry.
Introducing Decentralization for Mergers
While M&A activity has consistently been controlled by major centralized institutions, they often fail to reflect the dynamism of the motivations behind a merger or acquisition.
Whether parties are looking to onboard new talent, build capabilities, enter new markets, or exit their startup, there can be plenty of complexity surrounding M&As that revolve around investment bankers, third-party advisors, and internal company resources.
For instance, M&As hinge on valuations, significant transaction volumes, the retention of employees, confidentiality, and other essential actions to be completed. All of these processes can be optimized through decentralized blockchain technology.
Through distributed ledgers, cryptographic transactions can help all parties involved in M&A activity to ensure that all exchanges of money are final and validated by all parties.
In addition to this, cryptocurrencies can help to bring faster borderless transaction speeds with the potential for greater security and programmability across different M&A scenarios. With early signs of a crypto bull market kicking into gear in 2024, this could form the perfect bridge for a more widespread transition to blockchain M&As.
Despite 2022 hosting a widespread slowdown of M&A activity, crypto mergers and acquisitions actually grew by more than 100 deals to a total of 265 in the first half of the year. Total fundraising volumes also climbed to $24.2 billion.
Blockchain’s continued emergence will bring more technologically advanced solutions for prospective mergers and acquisitions, and factors like greater efficiency and trust are set to produce more instances of on-chain mergers over the coming years.
Blockchain Complements Tech M&A Activity
So, how exactly will blockchain drive M&A activity in the future? Blockchain and cryptography open the door to many industry advancements, but the key applications of the technology are two-fold.
In terms of business transactions, smart contracts have the potential to become one of the most transformative innovations in the 21st Century so far. Smart contracts which are binding cryptographic agreements recorded on the blockchain, will streamline negotiating M&A contracts. They can also digitally monitor the progress of agreements and automatically execute transactions when terms are met.
This helps to guarantee that each party are committed to M&A terms in a fully transparent way without the need for third parties or middlemen.
Secondly, blockchain offers more advanced levels of due diligence. Because blockchains operate on a fully transparent and digitally shared database, the contents are immutable across the ledger. This not only introduces greater levels of trust to the M&A landscape but can also ensure the safe transfer of intellectual property and intangible business assets.
As blockchain technology continues to mature, its timing will be perfect for a tech landscape that’s full of ‘digital disruptors’ preparing to make their entrance into a burgeoning AI market.
Data suggests that tech acquisitions have long been a driver for growth when it comes to leading tech firms.
“Companies that make, on average, more than five deals per year grow at double the rate of companies that only selectively pursue M&A,” explained Markus Berger-de León, senior partner at McKinsey.
“They also spend 38 percent less on each acquisition deal, allowing them to pursue a more programmatic approach: building a portfolio of companies that help them scale rather than going all out for one or two big targets.”
For businesses building high volumes of M&A activity, smart contracts serve as a glimpse into a more frictionless future for faster international acquisitions of exciting tech startups. As the AI boom continues to grow and mature, it’s likely to be a key catalyst for the introduction of blockchain M&As.
We’re seeing more widespread M&A activity in the world of tech beyond artificial intelligence, too. The recent partnership between MAX Exchange and BitGet serves as an example of a maturing fintech landscape.
As more technology has the opportunity to mature, the emergence of blockchain-powered mergers and acquisitions becomes inevitable.
Looking to an On-Chain M&A Future
As the tangible and intangible qualities of tech-based mergers and acquisitions become more sophisticated, blockchain-based solutions such as smart contracts and ledger transparency will become essential in sustaining the deal volumes we became accustomed to during 2021’s M&A frenzy.
The blockchain M&A revolution is likely to grow steadily through more fintech and crypto-based business models as the next cryptocurrency bull run begins to take hold before its transformative credentials are recognized on a more comprehensive level.
Through the upgrading of due diligence audits of targets and acquisitions, on-chain data can pave the way for seamless processes while tech transactions can be brokered without the need for extensive third-party scrutiny of new technologies.
For now, 2021 may stand as an anomaly within the M&A landscape, but the transformative influence of blockchain is likely to have a major impact on leveraging frictionless mergers and acquisitions over the coming years. The age of smart contract acquisitions is nearly upon us.
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