A trio of regulated Canadian cryptocurrency exchanges have decided to join forces in a landmark deal for Canada’s crypto sector.
WonderFi, Coinsquare, and CoinSmart Financial announced today that the three companies reached an agreement to combine and create what they claim will be “Canada’s largest regulated crypto asset trading platform.” Collectively, Vancouver-based WonderFi, and Toronto’s Coinsquare and CoinSmart have over $600 million CAD in assets under custody and more than 1.65 million users.
This three-company combination deal comes months after Coinsquare backed out of its agreement to acquire CoinSmart amid reported talks about a merger with WonderFi. CoinSmart first rejected and then eventually accepted Coinsquare’s move, but announced its intention to seek monetary damages in court. Today’s deal appears to mark an end to this saga.
“With this combination, we have the scale to be the market leader in Canada, a strong balance sheet that will allow for expansion, and a clear path to profitability.” – Dean Skurka, WonderFi
As part of the merger agreement, TSX-listed WonderFi will issue about 270 million common shares to Coinsquare investors, and approximately 119 million common shares to CoinSmart’s shareholders. Once complete, Coinsquare shareholders will own 43 percent of the combined firm, WonderFi shareholders will own 38 percent, and CoinSmart shareholders 19 percent.
“With this combination, we have the scale to be the market leader in Canada, a strong balance sheet that will allow for expansion, and a clear path to profitability,” said WonderFi president and interim CEO Dean Skurka.
Skurka added that together, the three companies will deliver a platform that allows users to trade, earn and pay with crypto, invest in equities, and place wagers, “all in one compliant ecosystem.”
The companies involved have known each other for some time now. In an interview with BetaKit, Skurka said that in early 2022, WonderFi also explored an acquisition of CoinSmart that never materialized. After CoinSmart and Coinsquare’s deal fell through earlier this year, Skurka said that WonderFi saw an opportunity to “act as the bridge” and bring both companies together. Beginning with an initial meeting in late February, the deal came together quickly.
For his part, Coinsquare CEO Martin Piszel argued that the merger will create “a safe, secure, scalable and regulated trading platform that can compete with the unregulated global exchanges still operating in Canada.”
In an interview with BetaKit, CoinSmart co-founder and CEO Justin Hartzman called the deal “the right move for this market,” arguing that it makes sense to bring all of these platforms that do similar things together. As a single corporate entity, Hartzman said the trio will be able to achieve more economies of scale.
“Canada has been pretty forward with their regulatory approach,” said Skurka. “On the back of that, significant costs and obligations arrive and really, without scale, it can be hard for some of the smaller platforms to really sustain their business models, [and] certainly not in environments like we’ve seen [recently].”
In fiscal 2022, WonderFi, Coinsquare, and CoinSmart collectively generated approximately $37 million in revenue. Per each firm’s latest earnings report, CoinSmart pulled in $13.3 million in revenue last year, while WonderFi generated $9.1 million for the 15 months ending December 31, 2022. These figures indicate that Coinsquare, which is privately held, likely accounts for the single largest share of this revenue figure.
Once combined, the resulting company will possess cash and investments of $50 million and no debt. The merged company will wholly own a variety of different platforms, including Bitbuy, Coinberry, Coinsquare, CoinSmart, SmartPay, CBIX, Bitcoin.ca, and BetLegend, a new sports betting app that WonderFi is set to launch soon.
As part of the deal, CoinSmart shareholders will also be entitled an earn out of up to an additional $15 million of total consideration over the next three years, based on the revenues of CoinSmart’s SmartPay business.
This business combination remains subject to shareholder, regulatory, and court approvals, as well as customary closing conditions. The companies expect to require a go-ahead under the Canadian Competition Act, and permission from securities regulators, the Neo Exchange (which CoinSmart trades on), and the TSX.
The transaction still requires two-thirds approval from Coinsquare and CoinSmart shareholders and majority support from WonderFi investors. Associated meetings will take place during Q2, and if approved, the deal will close thereafter. Common shares of the combined company are expected to trade on the TSX.
The merger comes amid challenging conditions for crypto companies. Recent market volatility has helped fuel consolidation in the sector. For its part, WonderFi itself had already acquired two other registered crypto trading platforms in Bitbuy and Coinberry over the past year.
In October 2022, Coinsquare became the first Canadian crypto trading platform to register as an investment dealer and achieve membership with the Investment Industry Regulatory Organization of Canada (now the New Self-Regulatory Organization of Canada).
Once the deal is complete, the registered crypto asset trading businesses of the three companies will be consolidated under Coinsquare’s investment dealer registrant, Coinsquare Capital Markets.
A committee has been formed to help decide how best to integrate the three companies. This group will be led by WonderFi strategic advisor Noel Biderman and include representation from WonderFi, Coinsquare, CoinSmart, and Mogo. Details of how the shared tech stack will be aligned remain to be determined, but Skurka and Hartzman noted that there will likely be some consolidation from a platform standpoint.
Per Skurka, the combined company’s path to profitability will involve diversification beyond just crypto and implementing shared services.
CoinSmart CEO Justin Hartzman emphasized that the company doesn’t “hold grudges.”
Skurka said WonderFi has now “reached the scale that we needed” when it comes to consolidation. Now, WonderFi is focusing more on diversification as it looks to expand beyond just crypto trading and into equities trading, sports betting, and casino operations. If the combined company does pursue any additional acquisitions, Skurka said they would likely be outside of crypto.
“Despite the fact that volatility has brought [crypto] prices down over the last six to 12 months, we’re still long-term believers,” said Skurka. “And we align on the future that’s just bigger than crypto. We have this great user base. How do we build the products and services that keep them in our ecosystem, long-term?”
Though he was disappointed by how things initially played out between CoinSmart and Coinsquare, Hartzman emphasized that CoinSmart doesn’t “hold grudges,” adding, “at the end of the day, this deal comes together, we mitigate any damages we may have had, and we move on to build something really great together, and that’s our hope.”
Feature image edited by Josh Scott.