How Blockchain will Drive Future M&A Activity

I have little interest in the wild fluctuations of cryptocurrency valuations that are being featured in the news. When it comes to cryptocurrency, there is one thing that is interesting to me as an M&A dealmaker: blockchain or distributed ledger technology. While it hasn’t been featured by itself in Corum’s Top 10 Disruptive Trends (yet), distributed ledger technology is going to be driving change throughout almost every industry and sector. Companies are going to respond to this transition to more anonymous and trusted transactions by integrating the technology either through their own development or by acquiring companies that already have this technology.

 

 

 

 

In a nutshell, blockchain applications allow many entities to securely share digital transactions without a central administrator maintaining the file. As long as a majority of the computers on the network agree on a particular key, then that will be the correct one for the entire network. If someone attempts to change part of the key on their version of the blockchain, then the network will catch the incorrect key and throw out that version. This improvement to some backend technologies that already exist will be able to create more efficient systems and change how many industries fundamentally operate.

 

Why are blockchain applications disruptive? They are well suited for situations where you need a trustworthy transaction along with a permanent record of the transactions that came before it. In this setup, everyone on the network has a common history of all transactions.  If you are in the commerce, transportation, logistics, document management or financial sectors, this technology will likely be adapted and integrated into new and old systems alike.

 

Real Estate

As noted before, blockchain is best suited for cases where a trusted transaction and permanent record are required. In real estate, there is a tremendous amount of paperwork required. Because of the industry’s propensity to deal with fraud in ownership transfers, there is a multi-billion dollar industry involved in title insurance.

 

If the transfer of ownership is not legitimate, then the title insurance company will cover the cost associated with the transfer. In a blockchain world, the legitimacy of ownership is easily identified based on the associated chains. The transparency of transactions and information with blockchain can expedite the real estate process. What takes weeks to process now will take minutes. The voluminous document printing can finally be digitally transacted and costs will be reduced. A real estate blockchain application will record, track and transfer titles.  There are major initiatives in Sweden, Brazil and several other countries in this space.  As these initiatives produce more companies using blockchain, then you’ll see blockchain-baked companies looking more competitive in the M&A arena.

 

Composite Commerce/Supply Chain Management

IBM and Maersk have established a joint venture for conducting global trade using blockchain technology. This is a major endorsement of the technology. In a press release, Maersk said,

 

“The attributes of blockchain technology are ideally suited to large networks of disparate partners. A distributed ledger technology, blockchain establishes a shared, immutable record of all the transactions that take place within a network and then enables permissioned parties to access to trusted data in real time. By applying the technology to digitize global trade processes, a new form of command and consent can be introduced into the flow of information, empowering multiple trading partners to collaborate and establishing a single shared view of a transaction without compromising details, privacy or confidentiality.”

 

The blockchain’s secure and transparent transactions are ideally suited for streamlining and securing the supply chain. Maersk and IBM are making a big bet by becoming invested in this technology. The idea of ‘international’ transactions will be replaced by ‘cross-border, frictionless’ transactions.

 

Food Service

This is an area that is ripe for the transactional integrity of blockchain. The tracking from source to sale is in the process of being moved to blockchain technology. Walmart already has 1.1 million items tracked this way.

 

The previous traceability relied on a complicated investigatory process. Using blockchain, it can instead take minutes. Distributed ledger technology is becoming more widespread as Kroeger, Unilever and Tyson Foods begin to deploy blockchain applications. However, not everyone has had the chance to integrate blockchain technology making the companies in the food service area with this technology more interesting for buyers.

 

HRM/Compliance/Certification

Trusted, verifiable transaction tracking is getting a huge push in the HRM, Compliance and Certification areas. MIT-initiated digital diplomas in February based on blockchain technology. All graduates can share the diploma on social media or directly with employers. The verification/validation takes seconds. The same is happening with educational documents or certifications which are easily verifiable using blockchain. The online digital diplomas and certifications cannot be altered.

 

A study was recently done with 5,500 resumes which showed 80% of resumes had discrepancies and 12% outright false educational information. That information gap can be eliminated with blockchain. This extends to professional licensing, medical boards and many other areas where credential checking needs to be immediate and trustworthy. Companies like Sony Global Education and IBM are collaborating in this area and promoting the use of this technology in this area.

 

Conclusion

The above areas are only a select few that are experiencing the disruptive effects of blockchain and the distributed ledger. We are starting to see the effects of the technology across the board. Even in marketing technology (which I hosted a webcast about in December 2017), we’re seeing companies like NOIZ work on tracking information through the use of blockchain. Healthcare can utilize it with patients, providers and insurance companies. Finance can use it in creating easier to track and more trusted transaction histories. The Australian Stock Market (ASX) is currently working on implementing blockchain technology after a couple of years of testing the technology. In the government sector, there are considerations of using the security that comes with blockchain for elections systems. Dubai has announced that they want to be a “blockchain-powered government” by 2020.

 

While blockchain technology is still maturing, the disruptive effects of this technology should be watched by both buyers and sellers. Distributed ledger technology can impact so many industries by creating more efficient systems. As companies and individuals study the effects and uses, the technology will become more common and more integral to tech M&A deals. That is a broad brush of many industries that will be transformed by distributed ledger technology. The impact of these benefits, security and efficiency will be an impetus for major interest in the M&A space. But if you want to hear more details about blockchain and its future effects on M&A, feel free to contact me at MarcO@corumgroup.com

 

 

Posted by , Vice President on 3 April 2018
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