Key Takeaways
- • Galaxy Digital agreed on May 5, 2021 to acquire BitGo, the independent digital asset infrastructure provider, in a transaction valued at approximately $1.2 billion based on Galaxy's May 4, 2021 closing share price.
- • Consideration consists of 33.8 million newly issued Galaxy common shares and $265 million in cash, with a significant portion of the cash deferred up to 12 months post-close; BitGo shareholders will own about 10% of the pro forma company.
- • BitGo brings over $40 billion in assets under custody, more than 400 institutional clients, over 150 exchanges served, and a regulated custody business with trust companies in South Dakota, New York, Switzerland and Germany.
- • Mike Belshe, BitGo's founder and CEO, will become Deputy CEO and a board member of Galaxy Digital at close, which is expected in Q4 2021.
- • The deal is conditional on a concurrent reorganization that redomiciles Galaxy from the Cayman Islands to Delaware, creates an Up-C structure, and targets a U.S. exchange listing.
Summary
Galaxy Digital Holdings Ltd. (TSX: GLXY) announced on May 5, 2021 that it has agreed to acquire BitGo, which the company describes as the leading independent digital assets infrastructure provider. Galaxy Digital said the combination makes it the first full-service financial platform for digital assets and a one-stop shop for institutions seeking access to the crypto economy. Mike Novogratz, CEO and founder of Galaxy Digital, said the deal significantly accelerates the company's mission to institutionalize digital asset ecosystems and blockchain technology.
Under the merger agreement, BitGo shareholders will receive 33.8 million newly issued Galaxy common shares and $265 million in cash, subject to adjustments and deferred purchase considerations. The company puts the aggregate transaction value at approximately $1.2 billion based on its closing share price on May 4, 2021. Galaxy will fund the cash component from its balance sheet, with a significant portion deferred up to 12 months after close. Galaxy will also issue incremental shares to BitGo shareholders in exchange for BitGo's net digital assets at close. BitGo shareholders will own approximately 10% of the pro forma company. Both boards have approved the transaction, which is expected to close in the fourth quarter of 2021, subject to shareholder approval of the domestication, the internal restructuring, regulatory approvals and other closing conditions.
BitGo, founded in 2013, describes itself as the first independent regulated custodian built for digital assets. The company reports over $40 billion in assets under custody, more than 400 institutional clients, over 150 exchanges served, over 30 billion monthly transactions, and support for more than 400 coins and tokens. Its products span custody and wallet infrastructure, prime lending, trading, portfolio management and tax solutions. Galaxy says the acquisition adds a regulated client custody solution, more than 400 net new clients, a West Coast office in San Francisco, over 50 engineers, and recurring revenue that is significantly less correlated with digital asset prices. Galaxy also cites SOC 1 Type 1 and SOC 2 Type 2 audits at BitGo. Mike Belshe will join as Deputy CEO and board member.
The transaction is conditional on a reorganization approved by Galaxy's board, which is not conditional on the BitGo deal. Galaxy Digital and its operating partnership, Galaxy Digital Holdings LP (OpCo), would redomicile from the Cayman Islands to Delaware, and a new Delaware holding company, Galaxy Digital Pubco Inc., would become the successor public company. Novogratz would transfer control of OpCo's general partner to PubCo and receive voting securities carrying about 66% of votes, with other Class B holders receiving about 5%, without economic rights. Galaxy intends to apply to list PubCo's Class A shares on a U.S. national securities exchange and to eliminate its variable voting rights.
Because the voting issuance to Novogratz and other senior officers is a related party transaction under MI 61-101, an independent special committee of directors other than Novogratz oversaw the reorganization. The committee, with independent counsel and a financial adviser, determined the securities are worth less than 25% of Galaxy's market capitalization, so no formal valuation or majority-of-the-minority vote is required under the rules. The committee nonetheless will seek majority-of-the-minority approval from ordinary shareholders. Cayman law requires a two-thirds vote of shares voted for certain aspects, and the reorganization also needs TSX approval and SEC effectiveness of a registration statement. Galaxy will mail a management information circular detailing the process.
Under the merger agreement, BitGo shareholders will receive 33.8 million newly issued Galaxy common shares and $265 million in cash, subject to adjustments and deferred purchase considerations. The company puts the aggregate transaction value at approximately $1.2 billion based on its closing share price on May 4, 2021. Galaxy will fund the cash component from its balance sheet, with a significant portion deferred up to 12 months after close. Galaxy will also issue incremental shares to BitGo shareholders in exchange for BitGo's net digital assets at close. BitGo shareholders will own approximately 10% of the pro forma company. Both boards have approved the transaction, which is expected to close in the fourth quarter of 2021, subject to shareholder approval of the domestication, the internal restructuring, regulatory approvals and other closing conditions.
BitGo, founded in 2013, describes itself as the first independent regulated custodian built for digital assets. The company reports over $40 billion in assets under custody, more than 400 institutional clients, over 150 exchanges served, over 30 billion monthly transactions, and support for more than 400 coins and tokens. Its products span custody and wallet infrastructure, prime lending, trading, portfolio management and tax solutions. Galaxy says the acquisition adds a regulated client custody solution, more than 400 net new clients, a West Coast office in San Francisco, over 50 engineers, and recurring revenue that is significantly less correlated with digital asset prices. Galaxy also cites SOC 1 Type 1 and SOC 2 Type 2 audits at BitGo. Mike Belshe will join as Deputy CEO and board member.
The transaction is conditional on a reorganization approved by Galaxy's board, which is not conditional on the BitGo deal. Galaxy Digital and its operating partnership, Galaxy Digital Holdings LP (OpCo), would redomicile from the Cayman Islands to Delaware, and a new Delaware holding company, Galaxy Digital Pubco Inc., would become the successor public company. Novogratz would transfer control of OpCo's general partner to PubCo and receive voting securities carrying about 66% of votes, with other Class B holders receiving about 5%, without economic rights. Galaxy intends to apply to list PubCo's Class A shares on a U.S. national securities exchange and to eliminate its variable voting rights.
Because the voting issuance to Novogratz and other senior officers is a related party transaction under MI 61-101, an independent special committee of directors other than Novogratz oversaw the reorganization. The committee, with independent counsel and a financial adviser, determined the securities are worth less than 25% of Galaxy's market capitalization, so no formal valuation or majority-of-the-minority vote is required under the rules. The committee nonetheless will seek majority-of-the-minority approval from ordinary shareholders. Cayman law requires a two-thirds vote of shares voted for certain aspects, and the reorganization also needs TSX approval and SEC effectiveness of a registration statement. Galaxy will mail a management information circular detailing the process.
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