Thailand
Thailand: M&A with cryptocurrency?
All stakeholders in the cryptocurrency market have been watching to see how the Thai government responds to the global phenomenon that is virtual currency. But despite all the talk and anticipation of a formal legal framework to regulate cryptocurrency — and contrary to the more accommodating stance the Securities and Exchange Commission has been taking — a Bank of Thailand circular issued last month disappointed many.
The central bank circular asked for cooperation from all financial institutions to not engage in or support transactions involving cryptocurrencies, stressing the high risks associated with the use of and investment in such assets. It also reaffirmed the official view that cryptocurrency is not recognised as legal tender in Thailand.
Despite all the scepticism and controversies surrounding cryptocurrencies, it is undeniable that they have become a force to be reckoned with in the global financial and payments systems. From something that may have been invented primarily to bypass the traditional reserve banking system, cryptocurrencies such as Bitcoin and other “altcoins” have grown in popularity. They have attracted the attention of governments worldwide, as investors — both institutional and individual — have come to attach very high value to these digital assets, even when there is little or no government backing.
Against this backdrop of uncertainty, one potential application that has received little attention is the use of cryptocurrencies as consideration in a merger and acquisition (M&A) transaction.
The traditional approach used by buyers to pay for shares or assets in an M&A transaction involves cash or, alternatively, “in-kind” considerations, including shares or other assets. The latter can range from more traditional assets, such as land, factories and machinery, which are easier to value, to intangible assets such as intellectual property rights, which are more difficult to place a value on. To date, there have been very few reported cases of M&A transactions involving the use of cryptocurrencies. Those that have been reported have been confined to the realm of acquiring other cryptocurrency-related businesses.
The perceived problems associated with cryptocurrencies may explain the reluctance of conventional businesses to look into their potential application in the M&A field. For a start, the cryptocurrency market has been characterised by very high price volatility and speculation, making it difficult to anticipate the value of a currency at a given time in the future. This can make it very difficult to plan the closing date payment in a major deal when there is a prolonged gap between the signing and closing of the transaction.
Some will argue that in any cross-border acquisition, where foreign currency is used to pay the purchase price, one faces a similar uncertainty with foreign exchange. But the degree of fluctuations in the foreign-exchange market is minuscule compared with that of digital currency. In addition, while a business can use foreign-exchange hedging to reduce risk, hedging may not be available at all for digital currency. Even if a financial institution is willing to provide this service in the future (when regulations allow), the fees involved are likely to be very high in order to protect against the potential downside.
M&A of the future: Although the use of cryptocurrency as a form of consideration in a merger and acquisition transaction may not be widespread at the moment, as more and more money is being converted into digital currency every day, it may not be long before the M&A market is forced to adapt to this new form of currency.
And there could be many potential benefits. By using cryptocurrency to pay for shares or assets in a transaction, their instantaneous exchange can be easily executed without the usual pre-arrangements with commercial banks or escrow accounts.
Cryptocurrency can be easily transferred without going through all the bureaucracy involved in transferring money, particularly where transfers from one country to another are concerned. This means that in a cross-border deal involving a seller in New York, a buyer in Bangkok and assets located all over the world, an anxious buyer in Bangkok, who has already submitted his wire instructions, will no longer have to wait for the bank in New York to open before the closing process can begin.
Foreseeing these potential benefits, some countries have already embraced cryptocurrency as a form of payment. For instance, last year Japan revised its Payment Services Act to legally define cryptocurrencies as a means of payment. We also see legislative efforts in Thailand to issue laws and regulations that will make various aspects of dealing in cryptocurrency clearer. With these developments, the use of cryptocurrency may become an efficient means to settle a closing date payment in the near future.
Source: https://www.bangkokpost.com/business/news/1435755/ma-with-cryptocurrency-