Is the Blockchain Now Coming for the Big Boys Club of Mergers and Acquisitions?

The highly lucrative M&A playing field was entirely in the hands of the incumbent Big Boys Club, until now

Ever since blockchain technology was introduced with the advent of Bitcoin in 2009, it was presented as a highly disruptive technology, coming after the well-guarded privileges of the global financial elite.

Since then much has changed. Banks, tech giants, and even regulators became friendly with Distributed Ledger Technology as it is called in these circles. Many view it as a tool that will augment established sectors, rather than have them go out with a bang. One thing however remained true to the original vision: whatever the blockchain touches has the potential of becoming cheaper, faster, and as such – much more accessible to many new players entering the market.

One excellent case study for this tendency is the Mergers and Acquisitions (M&A) industry. The term M&A describes the process in which one company acquires another or pieces of it – like its technology or R&D department. This may sound like a boring sub-sector of daily business activity, but is in fact becoming one of the major forces behind growth and development.

Giants like Google or Facebook for example seem to be incredible hubs of innovation, however not always because of their own research and development, but rather because of their ability to acquire knowledge, IP, and entire teams from the market.

Without extensive M&A shopping rounds, basic features that we associate with these behemoths, such as Facebook’s face recognition or Google’s navigation system, would not exist or work half as well.

Exclusive growth

This phenomenal growth avenue is of course open to already incumbent players only. Not only does one need considerable resources to acquire knowledge and know-how, but the very basic process of M&A entails such overhead costs, that many players are discouraged from even trying, even if the result could be mutually beneficial for all parties involved.

Many small startups have unused technology in their attic. These can be projects they pivoted on, or just a good tool they developed for internal use which could be useful for other market participants. On the other side you have companies, inches away from a giant breakthrough that could massively benefit from this unutilized technology.

However, given the complicated nature of M&A, these potential sellers and buyers have no means to efficiently engage in IP trade. It just takes too much time and resources, which these teams need to invest elsewhere. This has left the highly lucrative M&A playing field entirely in the hands of the incumbent Big Boys Club we know all too well.

Can the blockchain change this? After all, streamlining trade and value transfer has been the tech’s tagline ever since its early beginnings.  If you’ll ask the team behind LEXIT, a young Estonian blockchain startup, the answer is definitely a very loud “Yes!”

Admittedly, the idea behind LEXIT is fairly simple. On LEXIT you’ll find a platform marketplace, not that different from Ebay, AirBnB, or Flippa, only that instead of vintage action figures, empty guestrooms, or web domains, you’ll find entire companies, patents, and copyrights listed on it.

Now one could ask – If this is such a simple idea, why hasn’t it been proposed earlier? Well, the answer to this question is just as simple: It was straight out impossible. Companies can’t just be sold like a used car. There are patent lawyers, investment bankers, mediators, and appraisers involved.

A platform marketplace trying to offer an M&A environment would have to hold this personal in-house, and provide involved parties with discreet ways to negotiate without disclosing their secret sauce too early in the process. This would be immensely costly, and quite frankly not change much in the way things are done today.

New opportunities

Utilizing blockchain technology, however, many new options are suddenly available. Instead of relying on in-house personnel for example, LEXIT uses a decentralized network of service providers which compete to offer services to buyers and sellers, instead of locking them in tight contractual relations. This is only possible among globally dispersed actors because a cryptographic token is involved in value transfer and the creation of reputation scores for these service providers.

The same is true for online negotiations. We’re talking here about the buying and selling of highly capital intensive assets. This is not something that can just be done using Skype and Google docs. To solve this, LEXIT offers a “Virtual Deal Room” in which all negotiation topics and results are automatically hashed in a blockchain, making them immutable and irrefutable. This log is then rendered into a contract, which both parties sign digitally and execute with a smart contract protected cryptographic transaction.

What this essentially does is lowers the barriers to enter the Mergers and Acquisition market to such a degree that buying and selling intellectual property may become an almost casual act, like listing a car on Craigslist, opening the space to actors that, until now, were excluded from it.

With 2017 bringing record breaking consolidation on the markets, and 2018 seeming to go in the same direction, such an intervention of disruptive blockchain solutions for the M&A market looks more necessary and practical than ever. Let’s hope for the best.

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