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. Could blockchain technology provide a much-needed resurgence in mergers and acquisitions in an ecosystem looking for a hero?
It’s essential to acknowledge how far M&A activity has fallen to explore where blockchain can take us. 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 closest 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 must look to extraordinary technology to supplement a return to form. For this reason, 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 can remove existing friction within mergers and acquisitions to recapture the growth-driven principles of the industry.
Introducing Decentralization for Mergers
While major centralized institutions have consistently controlled M&A activity, they often need to reflect the motivations behind a merger or acquisition dynamically.
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, cryptocurrencies can help 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 grew by more than 100 deals to 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 critical 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 and binding cryptographic agreements recorded on the blockchain will streamline the negotiation of M&A contracts. They can also digitally monitor the progress of the accords and automatically execute transactions when terms are met.
This helps guarantee that each party is committed to M&A terms fully transparently without the need for third parties or intermediaries.
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 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 entire of ‘digital disruptors’ preparing to enter a burgeoning AI market.
Data suggests that tech acquisitions have long driven growth in 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, intelligent contracts provide 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 introducing blockchain M&As.
We’re also seeing more widespread M&A activity in the tech world beyond artificial intelligence. 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 tech-based mergers and acquisitions’ tangible and intangible qualities 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 more comprehensively.
Through the upgrading of due diligence audits of targets and acquisitions, on-chain data can pave the way for seamless processes. At the same time, tech transactions can be brokered without extensive third-party scrutiny of new technologies.
For now, 2021 may stand as an anomaly within the M&A landscape. Still, blockchain’s transformative influence is likely to significantly impact leveraging frictionless mergers and acquisitions over the coming years. The age of intelligent contract acquisitions is nearly upon us.