Galaxy Digital Back Pedal On $1.2 Billion Deal For BitGo Acquisition, BitGo To Seek $100 Million In Damages

Galaxy Digital has announced that it’s backing out of its $1.2 billion proposed acquisition of the cryptocurrency custodian, BitGo.

Galaxy Digital Backs Out Of BitGo Deal

A $1.2 billion acquisition of Palo Alto, California-based BitGo by digital asset investment firm Galaxy Digital has been canceled, ending one of the biggest acquisitions in cryptocurrency history.

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In a press release, Galaxy Digital stated that it is ending the agreement because the cryptocurrency custody company was unable to deliver the audited financial statements that were due by the end of the previous month.

Mike Novogratz, CEO and founder of Galaxy Digital said:

“Galaxy remains positioned for success and to take advantage of strategic opportunities to grow in a sustainable manner. We are committed to continuing our process to list in the U.S. and providing our clients with a prime solution that truly makes Galaxy a one-stop shop for institutions.”

The M&A transaction would have been one of the biggest ever in the industry. The largest cryptocurrency transaction, according to Crunchbase data, involved the e-commerce startup Bolt purchasing the crypto and payment infrastructure business Wyre for $1.5 billion in April.

When the cryptocurrency industry was only getting started in May of last year, the proposed Digital Galaxy/BitGo agreement was disclosed. Digital assets, however, have had a very different year than last, with Bitcoin alone down about 65% from its November highs.

BTC/USD trades at $24k. Source: TradingView

The goal of the deal was to increase Galaxy’s market reach as a platform for financial services with a cryptocurrency focus. Galaxy Digital would have benefited greatly from the planned acquisition, which would have positioned the business as an end-to-end management platform with outstanding custodial services and top-notch security. In addition to further custody services for institutional clients, the acquisition would have also offered investment banking, tax and regulatory compliance services, and more.

“The acquisition of BitGo establishes Galaxy Digital as a one-stop-shop for institutions and significantly accelerates our mission to institutionalize digital asset ecosystems and blockchain technology,” Mike Novogratz, founder and chief executive of Galaxy Digital, said at the time.

It disclosed that it would pay $265 million in cash for the acquisition and issue 33.8 million shares to do so. After that, BitGo shareholders will own 10% of the business.

By the end of March, Galaxy reported a delay in the acquisition while the two parties reworked the agreement to give BitGo owners a roughly 12% stake in the merged company.

The announcement comes in the wake of Galaxy’s second-quarter results, which showed a net comprehensive loss of $554.7 million due to reductions in the value of digital assets. Nevertheless, according to the earnings call, the company continued to have a strong $1.5 billion liquidity position as of June 30, 2022.

BitGo Fires Back, Threatens Law Suit

In response, BitGo has threatened to sue Galaxy Digital for $100 million in damages. In a statement shared with The Block, BitGo said:

“It intends to take legal action against Galaxy Digital for its improper decision to terminate the merger agreement with BitGo, which was not scheduled to expire until December 31, 2022, at the earliest and to not pay the $100 million reverse break fee it had promised back in March 2022 in order to induce BitGo to extend the merger agreement.”

BitGo has retained the law firm Quinn Emanuel, according to its press statement. “The attempt by Mike Novogratz and Galaxy Digital to blame the termination on BitGo is absurd,” partner R. Brian Timmons said in a statement.

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