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Coinbase Acquires Futures Exchange FairX
Coinbase Acquires Futures Exchange FairX

On January 12th, 2022, Coinbase announced the acquisition of FairX, a
Commodities Futures Trading Commission (CFTC) registered Designated
Contract Market (DCM) offering futures. Architect Partners served as the
financial advisor for FairX.

FairX operates a regulated futures exchange for retail investors. The
company offers 1) straightforward and retail user-friendly products 2)
discounted fees compared to a traditional futures exchange, 3) retailfocused products requiring less capital, and 4) committed market makers
enabling strong liquidity. FairX launched in June 2021 and currently offers
futures on two index products in two sizes: the Bloomberg US Large Cap
Index Futures and SuperTech Index Futures, as well as Micro Crude Oil
Futures.
Since launch, FairX had an average daily volume across its products of about
9,000 contracts. Based in Chicago, FairX was founded in 2019 by Neal Brady,
CEO and co-founder of ErisX, acquired by CBOE (M&A Alert) last year,
Harsha Bhat, CTO and previous SVP/CTO of State Street’s GlobalLink trading
platforms, and Chairman Clifford Lewis. FairX raised over $27 million in three
funding rounds. Notable investors include Hyde Park Venture Partners, TD
Ameritrade, XTX Ventures, Battery Ventures, Limerick Hill, and Virtu
Financial.

We are seeing a trend of crypto-native firms acquiring regulated entities to
expand their offerings of sophisticated financial products. Both retail and
institutional clients demand regulatorily compliant solutions, but current
regulation is often disjointed as crypto can be an awkward fit for existing
regulatory structures. There has been much discussion regarding a
straightforward set of rules for crypto, most likely tweaks to existing
frameworks. Buying regulated entities therefore provides regulatory
“insurance” for crypto firms while future regulations are being
implemented. Coinbase has done this in the past, via purchases of three
SEC-licensed firms. FTX’s October 2021 acquisition of LedgerX is another
example, absorbing LedgerX’s 3 CFTC licenses of DCM, Swap Execution
Facility, and Derivatives Clearing Organization. We expect this approach to
accelerate in the next twelve months as crypto-native firms continue to
integrate with traditional financial services.

There are several drivers for this acquisition. First, FairX provides Coinbase
with a crypto derivatives regulatory framework for both retail and
institutional investors in the US. FairX is a CFTC registered DCM, and will be
Coinbase’s first entity fully regulated by CFTC (Coinbase applied for an
Futures Commission Merchant license in September of 2021, but has not yet
been approved). Second, it allows simplified access to futures to their
sizable retail client base. Lastly, it furthers Coinbase’s institutional product
line. Institutions need to hedge positions and hedging Bitcoin or Ethereum
is done under the commodity framework in the US.

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  • Coinbase Acquires Futures Exchange FairX

    Acquired By

    Coinbase Acquires Futures Exchange FairX
    On January 12th, 2022, Coinbase announced the acquisition of FairX, a Commodities Futures Trading Commission (CFTC) registered Designated Contract Market (DCM) offering futures. Architect Partners served as the financial advisor for FairX.
    FairX operates a regulated futures exchange for retail investors. The company offers 1) straightforward and retail user-friendly products 2) discounted fees compared to a traditional futures exchange, 3) retailfocused products requiring less capital, and 4) committed market makers enabling strong liquidity. FairX launched in June 2021 and currently offers futures on two index products in two sizes: the Bloomberg US Large Cap Index Futures and SuperTech Index Futures, as well as Micro Crude Oil Futures. Since launch, FairX had an average daily volume across its products of about 9,000 contracts. Based in Chicago, FairX was founded in 2019 by Neal Brady, CEO and co-founder of ErisX, acquired by CBOE (M&A Alert) last year, Harsha Bhat, CTO and previous SVP/CTO of State Street’s GlobalLink trading platforms, and Chairman Clifford Lewis. FairX raised over $27 million in three funding rounds. Notable investors include Hyde Park Venture Partners, TD Ameritrade, XTX Ventures, Battery Ventures, Limerick Hill, and Virtu Financial.
    We are seeing a trend of crypto-native firms acquiring regulated entities to expand their offerings of sophisticated financial products. Both retail and institutional clients demand regulatorily compliant solutions, but current regulation is often disjointed as crypto can be an awkward fit for existing regulatory structures. There has been much discussion regarding a straightforward set of rules for crypto, most likely tweaks to existing frameworks. Buying regulated entities therefore provides regulatory “insurance” for crypto firms while future regulations are being implemented. Coinbase has done this in the past, via purchases of three SEC-licensed firms. FTX’s October 2021 acquisition of LedgerX is another example, absorbing LedgerX’s 3 CFTC licenses of DCM, Swap Execution Facility, and Derivatives Clearing Organization. We expect this approach to accelerate in the next twelve months as crypto-native firms continue to integrate with traditional financial services.
    There are several drivers for this acquisition. First, FairX provides Coinbase with a crypto derivatives regulatory framework for both retail and institutional investors in the US. FairX is a CFTC registered DCM, and will be Coinbase’s first entity fully regulated by CFTC (Coinbase applied for an Futures Commission Merchant license in September of 2021, but has not yet been approved). Second, it allows simplified access to futures to their sizable retail client base. Lastly, it furthers Coinbase’s institutional product line. Institutions need to hedge positions and hedging Bitcoin or Ethereum is done under the commodity framework in the US.
  • Qualcomm Acquires Skyhook

    Acquires

    Qualcomm Acquires Skyhook

    Overview

    Qualcomm Acquires Location-Based Services Provider, Skyhook

    On April 26th, 2022, Qualcomm (NASDAQ: QCOM) closed the acquisition of Liberty Media portfolio company, Skyhook Wireless.

    Description

    Skyhook Wireless is a leading global location-based services provider enabling solutions for some of the largest companies in the world, including Microsoft, T-Mobile, Qualcomm, Kyocera, and KDDI. With over 650 issued patents, Skyhook Wireless is a technology and innovation leader and provides the most accurate and open platform for third-party access. Skyhook is unique in how they use over 6 billion global WiFi and other beacons in lieu of or to supplement GPS location, and is known for being the original location provider for the Apple iPhone.

    Skyhook’s closest competitors are other independent location technology companies including PlaceIQ, Polte, IndoorAtlas, Placed, Near, and HERE.

    Skyhook was founded in 2003, and headquartered in Boston, Massachusetts. The company was acquired by TruePosition, a subsidiary of Liberty Media (NASDAQ: LSXMB) for approximately $57.5mm in cash, in February 2014, and the merged entity took the Skyhook name.

    Observations

    Location has become a core requirement for nearly all mobile and IoT devices, as well as many non-mobile applications. However, continued explosion in mobile and IoT devices will be the main driver for an ever-increasing need for location-based information. That location-based information requires the critical underlying positioning technology that Skyhook Wireless provides.

    With the acquisition of Skyhook Wireless, Qualcomm becomes a key supplier of positioning technology to their core markets, and beyond.

    Often, buyers and sellers have a previously existing relationship, which holds true in this case. Qualcomm had been a customer of Skyhook’s for a number of years, demonstrating the “Acquire your Acquirer” approach to driving premium value M&A.

    Rationale

    Location has become central to solutions across numerous verticals, essential to wireless services, and critical for IoT. As a key supplier supporting the wireless and IoT markets, Qualcomm has now expanded its offerings to include this important value-added service. Qualcomm is also uniquely positioned to ensure the continued global quality and growth of the Skyhook positioning network.

    Additionally, Skyhook’s intellectual property portfolio fits well with Qualcomm’s focus on IP and will provide a platform for further innovation.

  • Checkr Acquires Inflection

    Acquired By

    Checkr Acquires Inflection
    On April 12, 2022, Checkr announced the acquisition of B2B online background screener Inflection for approximately $400mm according to the WSJ. Architect Partners served as the exclusive financial advisor to Inflection.
    Inflection is the leader in online background checks focused on the small and medium-sized business (SMB) market segment. Their highly automated platform provides fast, accurate, and cost-effective solutions with the top customer satisfaction ratings in the industry. Inflection’s core offering is GoodHire, which mainly provides pre-employment background checks to over 100,000 SMB companies. GoodHire supports over 100 screening services (drug tests, education & employment verification, etc.), delivered through their easy-to-use online platform or via API, and services a broad range of verticals including construction, healthcare, retail, and technology. Inflection was founded in 2006 as a consumer-focused background check provider that shifted focus to the SMB market segment with the launch of GoodHire in 2013. The company is currently led by CEO Mike Grossman, COO Max Wesman, and CFO Jared Waterman. Since its inception, the company has raised $30 million from Sutter Hill Ventures (Gregory Sands) and Matrix Partners (Josh Hannah). The company has not raised outside capital since 2010. Inflection has the leading market share in the SMB segment for pre-employment background screening. Larger, legacy background check providers that focus more on large enterprise customers include First Advantage (NASDAQ: FA), Sterling Check (NASDAQ: STER), and HireRight (NYSE: HRT). Checkr is a background check provider founded to service the rapid background check needs of large gig economy businesses such as Uber, Lyft, and Instacart. Their platform now also offers solutions to SMB and enterprise customers across several verticals including healthcare, technology, retail, and more. Founded in 2014, Checkr is headquartered in San Francisco, California. It is led by CEO Daniel Yanisse and has over 500 employees, serving over 15,000 enterprise customers. Over the last 8 years, Checkr has raised $560mm in equity funding through 6 rounds, with their latest series E round valuing them at $4.6B. Major investors in the company include Durable Capital Partners, Fidelity, Franklin Templeton, Coatue Management, T. Rowe Price (Corey Shull), Accel (Richard Wong), GV (Jules Maltz), Khosla Ventures, and several others. Historically, Checkr has made two acquisitions, both focused around delivering higher quality data to clients and increasing process efficiencies. They acquired Lymus in October 2018 and ModoHR Technologies in February 2022, both deals had prices undisclosed.
    Background checks have become an increasingly common part of the hiring process for the majority of firms across the United States. With legacy providers such as HireRight, Sterling Check, and First Advantage seemingly focused more on large enterprise sales than on offering modern, automated online services, there is significant room for innovation and increased efficiency in the market. Checkr successfully reduced friction for demanding, high-volume gig economy employers via their automated API solution and has been moving downmarket into enterprise and mid-sized clients, while Inflection reduced friction for the SMB market segment through automation and a user-friendly UI and has been moving up market into the enterprise segment.
    Through this acquisition, Checkr will significantly expand their fast-growing SMB business segment. Inflection brings Checkr tens of thousands of new SMB customers and some very strong data science capabilities based around collecting and cleansing people data. This makes Checkr the new leader in the SMB segment, and positions them to be able to offer a highly automated background screening offering to all market segments
  • Bitpanda Acquires Trustology

    Acquired By

    Bitpanda Acquires Trustology
    On February 22, 2022, Bitpanda announced the acquisition of crypto asset custodian, Trustology. Architect Partners served as the exclusive financial advisor to Trustology.
    Trustology is an institutional-grade crypto asset custodian that delivers a user-friendly, secure, and scalable hardware security module (HSM) custody solution. The company’s solution secures cryptographic keys through a centralized cloud storage that goes through multiple encryptions. Trustology’s key advantage is offering the high level security of an HSM custody solution, with the accessibility, scalability, and flexibility of a hot wallet. This is the same HSM technology that has secured trillions of transactions worldwide every day for over 30 years. Based in London, Trustology was founded in 2017 by CEO and former BNY Mellon Head of Emerging Technology Alex Batlin, CTO Mark Hornsby, and Head of Software Engineering Paul Yardley to bring reliable security to the crypto asset space. Trustology raised $8 million during their seed round in 2018 from ConsenSys (Jeremy Millar) and Two Sigma Ventures (Matthew Jacobus). Trustology competes directly with a large number of cryptocurrency custodians and custodian technology businesses such as GK8 (Celsius), Curv (PayPal), Coinbase Custody, Genesis Custody, Digivault, Fireblocks, Gemini, Copper, and BitGo (Galaxy).
  • Silvergate Acquires Diem Payment Network

    Acquired By

    Silvergate Acquires Diem Payment Network
    On January 31, 2022, Silvergate Bank announced the acquisition of certain assets of the Diem Association (“Diem”) associated with running of the Diem Payment Network for $201.15 million. Architect Partners served as the exclusive financial advisor to Diem.
  • Euromoney Institutional Investor PLC acquires Relationship Science (RelSci)

    Acquired By

    Euromoney Institutional Investor PLC acquires Relationship Science (RelSci)
    On May 21st, 2021, Euromoney announced the acquisition of RelSci. Architect Partners was the exclusive financial advisor to RelSci in this transaction.
    Relationship Science offers enterprise, nonprofit, and consumer customers deep insights into millions of organizations and their decision makers. Their solution includes aggregation of a client’s relationship data with RelSci’s internal database, automatic relationship mapping, AI-based news and business alerts, and insights on pathing to decision makers. Their people data offering is exceptionally broad with over 10 million people and 1.8 million organizations tracked on their platform that ranges from public companies, law firms, investment banks, and more. The company has over 600 large enterprise clients that consist of financial institutions, law firms, nonprofits, and corporations. RelSci’s relationship mapping is based on data science that scores how well a user should know a particular target, not on user-generated connections like LinkedIn. RelSci competes with other people data providers including LinkedIn’s Sales Navigator, BoardEx (acquired by Euromoney), Introhive, Equilar, Intapp, WealthEngine (acquired by Euromoney), and Wealth-X (acquired by Euromoney). Founded in 2011, by Neal Goldman, founder of Capital IQ, Relationship Science is based in New York City and is currently led by CEO Domenic Graziosi, who was previously the Director of Data Products at Capital IQ. The company received venture funding from a variety of well-known investors including Henry Kravis, William Ackman, Ken Langone, Salesforce, and many others. Founded in 1969, London based Euromoney is a leading provider of data and market intelligence to businesses. With 2,000 employees globally, Euromoney has trailing twelve-month (TTM) revenues of $431 million between their three divisions: pricing, data & market intelligence, and asset management. Euromoney has an enterprise value of $1.6 billion resulting in an EV / TTM revenue multiple of 3.7X. Euromoney’s data & market intelligence segment accounts for $190 million (44%) of their total revenue. Euromoney has acquired ten other companies in the last five years, with their four most recent acquisitions focused around the theme of people data aggregation. These four people data acquisitions include WealthEngine, Wealth-X, BoardEx, and The Deal, for a cumulative price of $122 million.
    While financial data has been effectively captured by large companies such as Capital IQ and Dunn & Bradstreet, people data is typically unstructured and therefore has always been much more difficult to capture. RelSci set out in 2011 to tackle this challenge and invested heavily in technology to build the gold standard in people data collection and presentation. With Euromoney’s financial support and broader distribution, the combined companies will be able to extend their competitive advantage in the people data space. A prime use case for people data is in CRM and sales automation tools, automating the manual process of figuring out “who does our organization know at customer X and who has the warmest path for an introduction”? RelSci had built integrations into Saelesforce.com and Microsoft Dynamics 365. This transaction represents another example of Architect Partners’ legacy of strategic M&A for data and data analytics clients.
    Over the past few years, Euromoney has become a leader in the people data market through their five acquisitions in the space (including RelSci). Their acquisition of RelSci will give them access to proprietary relationship mapping software, automated collection tools, and a broader set of people and organizational data. RelSci also nicely extends Euromoney’s data & market intelligence business unit.
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