Failed Merger Between Galaxy Digital and BitGo Results in $100M Lawsuit

Announced in 2021, Galaxy Digital (GLXY ) caught the attention of many when it announced intent to purchase BitGo (BTGO ) for a staggering $1.2B in stock and cash.  Fast forward 15 months, and it appears as though the deal has fallen through.

While deals fall through all the time, this particular situation has just become heated with BitGo announcing it now intends on suing Galaxy Digital for $100M in damages that Galaxy Digital is reportedly refusing to pay.

What Happened?

Originally, the reasoning behind this acquisition by Galaxy Digital was a simple one – acquire an established custodial platform to become a ‘one-stop shop’ for institutional investors.

The deal put in place was predicated on various requirements to be fulfilled by BitGo.  Per Galaxy digital, one of these was to provide financial statements before an agreed upon deadline, which it alleges BitGo did not meet.

Naturally, this allegation is refuted by BitGo, with its legal team calling the claim ‘absurd’ and that “BitGo has honored its obligations thus far, including the delivery of its audited financials”.

Foreshadowing

Dissolution of the agreement between Galaxy Digital and BitGo may not come as a huge surprise to onlookers, as the deal had already ran into a snag in March of 2022.

Due to a delay in its application with the SEC to be registered as a Delaware based entity, and developments at each company, terms of the deal were amended.  These amendments would have seen BitGo compensated at a slightly higher rate than originally agreed upon, with Galaxy digital citing the custodians internal growth over that time.  While this bode well for BitGo, it meant that the deal would not be finalized until after the SEC announced its decision on Galaxy Digital and its request.  This meant now including an extension on the deal and a clause which, for agreeing to the extension, would see BitGo compensated with a $100M ‘reverse break fee’ if Galaxy Digital decided to back out.

The Ramifications

Naturally, Galaxy Digital and its decision to back out of the deal has irked BitGo in a serious way.  As previously stated, the latter has now announced its intent to sue Galaxy Digital, citing wrongful termination of the merger agreement.

The company states that it, “…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 informed BitGo of both decisions this past Friday.”

Looking Forward

The deal, which was originally announced in the middle of the latest crypto bull market, may no longer make sense for Galaxy Digital as company valuations have dropped off precipitously in the time since.

Galaxy Digital itself has incurred massive losses in 2022, and seen its shares drop to a fraction of what they once were.  While nullifying the deal most likely makes sense, only time will tell if BitGo is found entitled to its $100M claim for the damages it states it has incurred.