New York-based Bakkt announced on Monday that it received regulatory approval to acquire trading infrastructure provider Apex Crypto in one of the largest deals in the crypto landscape since the onset of the bear market in mid-2021. The deal will see the publicly-traded Bakkt pay $55 million in cash plus $100 million in stock.
While Bakkt first announced the purchase in November, it had to wait for regulatory approval from the New York Department of Financial Services, where Bakkt holds both a BitLicense and trust charter, as well as a number of other states where Bakkt and Apex hold money transmitter licenses.
Bakkt, which offers trading and custodial services, went public in October 2021 through a special purpose acquisition company, but its share price has plunged nearly 96% from a high shortly after its IPO. For CEO Gavin Michael, the purchase of Apex represents a path toward profitability for Bakkt as it looks beyond the Crypto Winter.
"We're really positioning ourselves to that next wave," he told Fortune in an interview on Friday. "Crypto is here to stay."
Bakkt's next chapter
Since its founding in 2018, Bakkt has tried out different approaches to crypto markets, including offering Bitcoin futures trading to institutional investors, as well as a direct-to-consumer crypto-powered rewards program. According to Michael, Bakkt has settled on what he describes as a business-to-business-to-consumer strategy, or B2B2C in industry terms, meaning that Bakkt offers its services to other businesses, who in turn serve retail customers.
As an example, Bakkt works with community banks and credit unions to help them build an embedded web experience into their digital platforms where their users can trade Bitcoin. In other words, Bakkt functions as a simple Bitcoin exchange incorporated into other financial platforms. As a trust company, it also offers Bitcoin custodial services to institutional clients, meaning it will hold Bitcoin on their behalf. Bakkt received a trust charter from NYDFS in 2019 and a BitLicense in 2021.
In February, Bakkt shuttered its consumer-facing crypto rewards app, where companies could offer customers crypto incentives. Michael said that Bakkt still works with clients to help them manage rewards programs, including the hotel and casino giant Caesars Entertainment.
Bakkt has an impressive pedigree, initially launched by the Intercontinental Exchange, the operator of the New York Stock Exchange, as its first foray into crypto. Even so, Bakkt has struggled to find a winning strategy, with The Information reporting on Friday that it laid off staff in December and March and plans to reduce its headcount 40% by the end of 2023, compared to the end of 2022. Bakkt currently has a market cap of just over $456 million.
Apex presents a lifeline for the company. A so-called "turnkey platform," Apex has a similar model to Bakkt, allowing other businesses to implement crypto trading into their services. Michael said that Apex has a wider array of cryptocurrencies that it offers, as well as servicing a wider array of businesses, including neobanks and other financial technology companies. Two of Apex's clients are the financial services firm WeBull and the investing platform Public.com.
With the acquisition of Apex, Bakkt will gain its nearly 6 million crypto-enabled accounts, 30 enterprise clients, and $12.5 billion of crypto traded. Michael said that Apex will also help it expand into overseas markets, noting that many of its existing financial technology clients operate internationally. The company hopes to be EBITDA-positive in 2024.
"We want to be able to scale the business efficiently and effectively," Michael told Fortune.
Given the regulatory difficulties facing the crypto industry, the acquisition represents a rare bright spot for the sector, with Bakkt working with its regulator, NYDFS, to complete the deal.
"It's been tough for the last few months," Michael said. "We're able to really show that there are thoughtful, risk-focused players that are able to positively impact the space."
