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27 Dec Will Bitcoin Ever Become a Legit Currency for M&A Consideration?

The rise of bitcoin has been more than dramatic. It’s use as an alternative to fiat currency is becoming more legitimized, even after the unfortunate Mt. Gox incident. As the currency becomes more legitimized, more like a legal currency, it may actually be used as a legitimate form of consideration in creatively-financed merger and acquisition deals.

In a typical M&A deal, a buyer will use cash, notes or earn-outs as consideration in the purchase of the business. In public company deals, the potential for using all three is even greater as public stock is a more liquid form of consideration. But will bitcoin ever be used as a form of liquid consideration in M&A? Here are a couple of thoughts.

Because bitcoin can be immediately exchanged for fiat cash, it may potentially be used in M&A consideration. Unfortunately, traditional investors, including Warren Buffet have spurned the idea of investing in the digital currency:

Stay away from it. It’s a mirage, basically. … It’s a method of transmitting money. It’s a very effective way of transmitting money, and you can do it anonymously and all that. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money? Are money orders? You can transmit money by money orders. People do it. I hope Bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways, and it will be. The idea that it has some huge intrinsic value is just a joke in my view.

Certainly some will be less-inclined to buy, hold or invest in bitcoin, it may eventually be used in a transaction as a form of consideration that could be immediately converted to cash. Here are a few reasons why.

  1. It’s extremely liquid. Much like public company stock, bitcoin can be immediately converted to cash.
  2. It has a large market. Building market support is unnecessary. The widespread use of bitcoin as a currency means the market for the stock as a form of currency is readily accepted.

The use of bitcoin as a acceptable exchange medium between buyer and seller may potentially increase as bitcoin itself becomes more legitimized. It’s likely to take a while since the likes of Warren Buffet are still not giving bitcoin the time of day. The full acceptance of bitcoin does not necessarily mean it will be used in merger transactions, especially in the public company arena. Few private companies will likely use it as well, unless of course buyers and sellers have significant buy-in to the currency or a good reason to use it instead of cash. In most cases, if a business holds large holdings in bitcoin it would make more sense to get the bitcoin converted to cash rather than use it directly. As things get more legitimized, this may change, but I don’t expect it to happen anytime soon. What do you think?

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.