On August 15, cryptocurrency custodial platform BitGo sued digital asset merchant bank Galaxy Digital for $100 million in damages after the latter called off its planned purchase of the former. BitGo is the world’s largest processor of on-chain Bitcoin transactions and offers institutional cryptocurrency financial services including security, compliance, custodial, and liquidity solutions. Galaxy Digital is a cryptocurrency merchant bank offering asset management, advisory services for businesses, trading, and principal investing.
In 2021, Galaxy Digital announced plans to purchase BitGo for $1.2 billion in stock and cash. Galaxy likely chose to acquire BitGo with the intention of becoming a “one-stop shop” for institutional crypto investors. Potential challenges to the merger first surfaced in March 2022, when the terms of the deal were amended.
In January 2022, Galaxy had applied with the U.S. Securities and Exchange Commission (SEC) to be registered as an entity in Delaware. A delay in that application combined with other developments at both Galaxy and BitGo led to merger amendments that included a higher compensation rate to BitGo than originally agreed upon.
However, the SEC delay also meant the merger had to wait until Galaxy’s application was approved. To compensate BitGo for the merger delay, a “reverse break fee” clause was added in which Galaxy would pay BitGo $100 million if Galaxy backed out of the deal.
According to the court filing, Galaxy called off the merger on August 12, and BitGo “intends to hold Galaxy Digital legally responsible for its improper decision to terminate the merger agreement with BitGo, which was not scheduled to expire until December 31, 2022 at the earliest, and to not pay the $100 million reverse break fee it had promised back in March 2022 in order to induce BitGo to extend the merger agreement.” Galaxy’s valuation has fallen dramatically during 2022, which may have led to its decision to halt the merger.