The two firms have entered an agreement that will see Mogo grow its ownership stake in Coinsquare from almost 20 to 37 percent. To achieve this, Mogo intends to pay between $46.9 million CAD and $48.6 million total, in either cash or common shares (this deal has now closed for a total of $48.6 million, which Mogo paid through the issuance of nearly 5.1 million of its common shares, ed.). Mogo also holds a warrant that, if exercised, would permit the Vancouver company to increase its Coinsquare stake to 48 percent.
”We see a long runway for growth as more and more Canadians look for exposure to cryptocurrencies through a trusted, well-established provider.”
-Greg Feller, Mogo’s president + co-founder
The deal comes months after Mogo originally purchased a 20 percent stake in Coinsquare for $56.4 million CAD, giving the crypto startup a pre-money valuation of between $250 million and $350 million. For Mogo, the move represents another step towards its goal of building Canada’s leading digital wallet.
“We’re excited to increase our ownership position and deepen our relationship with Canada’s premier crypto platform and a clear market leader in one of the most exciting and fastest-growing sectors in fintech,” said Greg Feller, Mogo’s president and co-founder.
“While this asset class continues to experience rapid adoption, it is very much in its infancy and we see a long runway for growth as more and more Canadians look for exposure to cryptocurrencies through a trusted, well-established provider,” Feller added.
Coinsquare acts as the trading platform for MogoCrypto, a service Mogo launched in 2018 to allow its members to buy and sell Bitcoin. According to Feller, in April alone, Coinsquare generated $8 million in revenue, and in Q1 2021, Coinsquare saw a 500 percent increase in revenue year-over-year, amid rising adoption of cryptocurrency.
“Simply put, this is a highly strategic and incredibly valuable platform in the Canadian fintech ecosystem,” said Feller.
The Mogo-Coinsquare deal is set to involve two separate transactions, which remain subject to certain closing conditions and regulatory approval.
The first is the exercise of a call option on 3.2 million Coinsquare shares, which was included in Mogo’s initial purchase of a stake in Coinsquare, and is expected to close in June. The second is the purchase of 2.2 million shares in Coinsquare from Colorado-based Bitcoin mining firm Riot Blockchain. That portion of the deal is expected to close later this month.
Earlier this year, Coinsquare launched its crypto platform, Quick Trade, which allows Canadians to buy, sell, and trade digital assets through its app with no commissions. This move followed significant changes at the startup, which last year reached a settlement with the OSC over allegations of wash trading.
Mogo trades on the Toronto Stock Exchange and the Nasdaq under the symbol ‘MOGO.’ In the first quarter of 2021, Mogo generated revenue of $11.4 million, rising since Q4 2020 when it saw $10 million in revenue. According to the company, this quarterly growth was driven by an increase in subscription and services revenue.
This total also was a year-over-year decrease compared to the first quarter of 2020, when Mogo saw $13.9 million in revenue, due largely, it said, to the strategic sale of the majority of its loan book to goeasy in March 2020 for $31.9 million. In Q1 2021, Mogo saw a net loss of $2.8 million, identical to the previous quarter, but a decrease compared to Q1 2020. According to Mogo, this improvement was due to its divestment from Toronto FinTech startup Vena last month, as it sold its stake to Vista Equity Partners for $4.7 million.
In March, Mogo bought Moka in a $64 million all-stock deal, and in January, the company acquired digital payments company Carta.
Recently, Mogo has set its sights on expanding its crypto presence through the Coinsquare acquisition, the expansion of its bitcoin cashback rewards program, and its purchase of individual Bitcoin and Ether.
Mogo referred to these investments as consistent with its plans to “increase its on balance sheet investment in the blockchain and fintech ecosystem.” Later this year, Mogo plans to introduce a commission-free stock trading solution.
UPDATE (06/04/21): This story has been updated to note that the transaction has closed.
Image source Coinsquare via Glassdoor