Coinsquare, one of Canada’s biggest digital asset trading platforms, is set to acquire 12% of publicly-traded CoinSmart on a Pro-forma basis for $3 million cash and 5,222,222 common shares.
The combination of the two companies would have processed $10 billion in transactions since Jan. 2018 and collectively hold $350 million in assets under custody. This acquisition comes as Coinsquare is on the cusp of receiving approval to operate as Canada’s first crypto firm that is a part of the Investment Regulatory Organization of Canada.
“This acquisition represents a monumental and exciting milestone for both companies and brings together two industry-leading management teams,” said Coinsquare CEO Martin Piszel of the acquisition. “We are excited to work together to shape how the crypto industry in Canada grows and evolves, and together we will be able to offer our clients the most innovative and secure products backed by the highest standards of regulation in the industry.”
Coinsquare could also pay CoinSmart up to $20 million in cash if CoinSmart’s SmartPay, a product that allows businesses to send and receive crypto payments, meets specific targets. CoinSmart also stands to receive 1,100,000 Coinsquare shares if it meets over-the-counter business targets. In OTC trading, a crypto broker can buy crypto from a dealer rather than a public exchange. Coinsquare shares are currently worth $5.02.
The Canadian Securities Administrators, a body, made up of securities authorities from all Canadian provinces and territories, proposed guidelines for regulating crypto entities in 2021. However, much like in the United States, the crypto industry faces varying levels of regulation at the territorial and provincial levels.
In Aug. 2022, the Ontario Securities Commission issued warnings that 13 crypto firms, including KuCoin, were unregistered with the commission. Recently, crypto exchange Crypto.com completed a pre-registration agreement with the OSC. CoinSmart is registered with the OSC as a securities dealer and marketplace.
M&A will prepare us for next bull market: CoinSmart CEO
According to Piszel, the crypto industry is undergoing substantial change as regulators carve out a roadmap. “This has led to an ever-increasing cost structure and additional complexity in operating a viable crypto exchange,” he noted in a statement.
CoinSmart CEO Justin Hartzman believes that the merger helps to consolidate the position of both companies in preparation for the next bull market.
Following the transaction, Hartzman will join the Coinsquare executive team.
CoinSmart has enlisted Eight Capital, a wholly Canadian-owned investment dealer, as its financial adviser, and corporate finance law firm Wildeboer Dellelce LLP as its legal adviser. Origin Merchant Partners, an independent investment bank that provides advisory services for companies undergoing mergers and acquisitions (M&A), will advise Coinsquares on financial matters surrounding the acquisition. Goodmans LLP, a Canadian law firm specializing in mergers and acquisitions, will be its legal adviser.
New regulations to prevent another QuadrigaCX
While the Canadian crypto regulation landscape is starting to take shape with licensing regimes like the one in Ontario, some onlookers may remember all too well the QuadrigaCX scandal that rocked the industry and robbed investors of $250 million that has now been turned into a Netflix documentary.
Investors cried foul when the QuadrigaCX CEO Gerald Cotten appeared to have operated a Ponzi scheme and used their money to fund his lavish lifestyle before allegedly dying while on vacation with his wife Jennifer Robertson in India, leaving no way to access user funds stored in cold storage.
While the investors were left with a bitter taste, new crypto regulatory regimes in Canada that protect investors from schemes like Cotten’s will hopefully restore confidence in the industry.
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