Palo Alto digital asset custody provider, BitGo, lost a $1.2 billion acquisition proposal. The deal was canceled by the purchaser, Galaxy Digital, in late August. BitGo has filed a lawsuit in retaliation for damages made in bad faith.
The initial agreement made headlines at the height of the 2021 bull run in May as the first $1 billion deal in the crypto sector. One year later, the global crypto market cap plummeted by over 50%. Several prominent crypto asset companies have failed, and Galaxy Digital reported a more than $550 million loss in the second quarter of 2022.
Such drastic changes in market conditions likely led Galaxy Digital to seek a way out of their agreement and further enhanced BitGo’s desire to seek financial compensation for damages.
Galaxy Digital’s Statement
One year after saying yes, Galaxy Digital announced the termination of the BitGo acquisition. In their public statement, Galaxy Digital alleged that BitGo could not deliver its audited financial statements on time. Thus violating the parameters of the agreement and establishing grounds to cancel the deal.
BitGo has retained the services of the California-based law firm Quinn Emanuel and publicly announced a desire to seek a minimum of $100 million in damages. This law firm broke headlines last year as the first group of trial lawyers to file pricing complaints against Amazon.
BitGo’s response rests on a bad faith claim for damages incurred by Galaxy Digital. Citing a portion of the merger agreement from March 2022, Galaxy Digital promised to pay a $100 million reverse break fee to extend the merger agreement.
According to R. Brian Timmons, a partner at Quinn Emanuel, Galaxy Digital’s claim is ludicrous. “BitGo has up to this point complied with its commitments, which includes delivering its audited financials. The fact that Galaxy posted a $550 million loss for the most recent quarter, that its stock is underperforming, and that both Galaxy and Mr. Novogratz have been preoccupied with the Luna debacle are all known to the public. Either Galaxy has acted in bad faith and is subject to damages of at least that amount, or it owes BitGo the promised $100 million termination fee.
As of the end of last year, BitGo had more than $64 billion in assets under custody, per the company’s blog. They counted Galaxy Digital, Goldman Sachs, Valor Equity Partners, Craft Ventures, DRW, and Redpoint Ventures among their investors.
The proposed acquisition was not just a big deal. It was the largest deal ever reported in the industry. As declared by the SEC, Galaxy Digital planned to issue 33.8 million additional shares to BitGo shareholders and $265 million in cash to the company. At the time, Mike Novogratz, CEO, and creator of Galaxy Digital, remarked, “We are thrilled to welcome Mike Belshe and the amazing BitGo team to Galaxy Digital.
The goal for Galaxy Digital was to increase the scope of its institutional investor services, expand the firm’s geographic reach, and receive “immediate revenue synergy,” according to the SEC archive data.
Given current market conditions and the reported financial losses, it is no wonder Galaxy Digital sought probable cause to terminate the $1 billion acquisition. Doing so may or may not have been in the company’s best interest. If Galaxy Digital did agree to pay $100 million in a break of contract clause, then BitGo has grounds for the case pending review of their audit compliance. Ultimately, it will be determined through arbitration or a judge to what extent BitGo may claim damages.