Vancouver FinTech company Mogo has reached a deal to increase its ownership position in Coinsquare for the second time since February, while also gaining the right to purchase a majority stake in the Toronto-based cryptocurrency startup.
The agreement is set to see Mogo grow its stake in Coinsquare to 39 percent through the purchase of an additional two percent of outstanding common shares from Michael Diamond and an affiliated company.
Combined with prior agreements, the deal gives Mogo the ability to purchase an approximately 53 percent stake in the crypto firm.
As part of the deal, which was struck May 31, Mogo has also secured an option to buy an additional 3.4 percent of outstanding Coinsquare shares from vendors, which, combined with a prior warrant, gives Mogo the ability to purchase an approximately 53 percent stake in the crypto firm.
The transaction is expected to close in mid-June. For Mogo, the move represents another step towards its goal of building Canada’s leading digital wallet.
Mogo first purchased an almost 20 percent stake in Coinsquare in February for $56.4 million CAD. This agreement granted the crypto startup a pre-money valuation of between $250 million and $350 million, and gave Mogo the capacity to increase its stake in Coinsquare to 40 percent.
Earlier this month, Mogo announced plans to nearly double its stake in Coinsquare to 37 percent for up to $48.6 million, while also retaining a prior warrant enabling the FinTech company to acquire up to 48 percent of Coinsquare.
“In addition to the financial merits of our investment, this is a great fit strategically and supports our objectives to build the most comprehensive digital wallet in Canada, including a range of investing and saving options and a free stock trading solution,” said Greg Feller, Mogo’s president and co-founder.
Feller added that by allowing Mogo to leverage Coinsquare’s crypto capabilities, the move positions Mogo well to execute on its growth plans.
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The transaction remains subject to customary closing conditions, including regulatory and Toronto Stock Exchange (TSX) approval. Mogo trades on the TSX and the Nasdaq under the symbol ‘MOGO.’ The 3.4 percent option must be exercised within four months of the acquisition’s closing date.
Eric Richmond, Coinsquare’s COO and VP of legal, told BetaKit Coinsquare continues to operate independently from Mogo at this time. “We have our own board of directors, executive team, and there are no shared services between the companies,” said Richmond.
Richmond said the capital from Mogo “will help Coinsquare continue to grow and invest in new products and services in the digital asset space to serve Canadians.” According to the COO, Coinsquare is currently focused on building out its new trading platform and launching “the first regulated OSC marketplace and IIROC dealer for digital assets.”
In April, Mogo said Coinsquare generated record monthly revenue of $8 million, and the company anticipates Coinsquare’s May revenue will surpass this total. According to Mogo, in the first quarter of 2021, Coinsquare saw a 500 percent increase in revenue year-over-year amid rising adoption of cryptocurrency.
Founded in 2014, Coinsquare currently offers a mobile cryptocurrency trading platform, Quick Trade, which it launched in February. Quick Trade allows Canadians to buy, sell, and trade digital assets through its app with no commissions.
RELATED: Following changes to business, Coinsquare launches crypto trading app
The roll out of Quick Trade followed significant changes at the Toronto crypto startup, which last year reached a settlement with the OSC over allegations of wash trading.
Coinsquare also currently serves as the trading platform for MogoCrypto, a service Mogo launched in 2018 to allow its members to buy and sell Bitcoin.
Cole Diamond, co-founder and former CEO of Coinsquare, called Mogo’s continued increase in ownership stakes a positive sign of the value of Coinsquare’s tech and offering. Diamond, who holds shares in Coinsquare but no longer plays an active role in the company following the OSC settlement, noted Mogo’s increased stake makes it clear the FinTech company is looking to capitalize on the recent explosion of interest in the crypto sector and points to strong synergies between Coinsquare and Mogo.
Mogo has been making an increasing number of acquisition grabs this year. In March, Mogo bought Moka in a $64 million all-stock deal, and in January, the company acquired digital payments company Carta.
Lately, Mogo has also made a series of moves to expand its crypto presence through the Coinsquare stake acquisitions, the expansion of Mogo’s bitcoin cashback rewards program, and its purchase of individual Bitcoin and Ether. Later this year, Mogo plans to unveil a commission-free stock trading solution.
UPDATE (06/02/2021): This story has been updated to include commentary from Coinsquare.
Image source Coinsquare via Glassdoor