NFTs in the Future of Corporate Acquisitions and Buyouts
It’s no secret that NFTs have dominated the storm of the media coverage for the past 5 months. What started out as a decentralized solution to art collectors and valuing artistry has become a phenomenon with the heralding of the likes of Nike, Warner, YUM Foods, and even my own college UC Berkeley, auctioning off Nobel prize-wining research to fund further research opportunities.
But amidst the wave of trends, memes, outrageous bids, and general hype, there comes a separate avenue of utilizing NFTs: streamlining governance acquisitions and buyouts.
As if I couldn’t throw enough buzzwords already, this could be a special use case in the now marginally innovative world of DeFi. At best, new DeFi companies are improving code and usability of pre-existing features — whether they be AAVE’s flash loan system, Polygon’s base fee stability in compliance with EIP1559,etc. But the DeFi world needs a shocker like never before to keep its pace of scale and I believe this is the next wave. DeFi as a business model has largely been a B2C solution. But by accommodating enterprise opportunities, DeFi could makes it final push in allowing for mass adoption.
Enterprises have been very hesitant to adopt decentralized solutions in their way of archaically predisposing themselves towards a centralized growth. If any enterprise has thought about blockchain in the past few years, it’s usually early-stage to growth companies looking to transform and compete against competitive market conditions. Yet, the vast majority of corporations delay adoption. However, NFT platforms like OpenSea in 2021 have piqued interest amongst corporate naysayers when looking at how big these booms are (with outrageous buys trending on Twitter). Now, listen carefully when I say this: if you’re going to follow the NFT hype, do not follow it the normal way — create a new path. Utilize NFT platforms in valuing companies and acquiring them.
An NFT is essentially a platform to value any entity with a starting bid price. You’ve seen this happen with memes and all that — but what about corporations? By utilizing a Web3 NFT platform to value and list companies or property value, entities like industry giants, real estate investors, private equity firms, and hedge funds have access to never-before-seen liquidity advantages in incorporating a company in their portfolio.
M&A transactions and buyouts have been robust in improving market opportunities, diversifying holdings, pre-empting competition, enabling tax benefits, enhancing synergies in new markets, and overall increasing shareholder value. However there are several reasons why acquisitions, buyouts, and mergers fail and take months to years.
- Legal dilemma and hassle
- Overpaying
- Losing the trust of key stakeholders
Let me illustrate why each of these can be addressed in an NFT acquisition platform.
Legal dilemma and hassle
Legality of transactions is one of the most painful things to understand and navigate. The transferring of deeds, entitlements, grants, and further means of verifying ownership becomes taxing and difficult in the real world. A majority of the 4–8 month process of buying a company is filled with roadblocks related to this aspect. But with NFT platforms — that all changes. If you, a company, are operating with the intention to potentially sell your business- all legal documents can be imported into a smart contract (suggest Proof of Stake-based blockchains for best results) and allow for 60% of that 4–8 month process to be cut down to the runtime of your VM or computer. Verification with NFTs is beyond fast.
Overpaying
One way to address this: an NFT platform that enables bidding and real time updates to real estate values or company valuations. The bidding price starts with the company’s own input of valuation backed by their own models (ughhhh Excel). Acquirers can see an acquisition target with a reasonable price and make appropriate bid changes with their own due-diligence and analysis. Yet the overpaying comes at a disadvantage with multiple bidders and a simple transaction of ownership becomes a cartoon auction with the price being hiked up. One way to solve this issue is to specify acquisition target prices to the lower-middle market. This, however, severely diminishes the inclusivity of a decentralized corporate acquisition platform. Another solution is to create a one-time bid solution upon which it can be accepted or declined by the potential acquiree and potentially lead to re-evaluations. These are rudimentary at best, but still attempt to maintain a streamlined process analogous to the real life deal process.
Losing the trust of key stakeholders
2 years ago, I was curious and started looking at how blockchain can enhance the M&A process. I came across a great article that suggests enhancing the specific idea of trust in an ecosystem by incorporating a virtual deal room once a valuation proposal is made. I suggest reading this article from 2018 that dives into this concept here.
With all these in mind, the next door for innovation is in view!
What A Wonderful WORDL
Imagine a world where your company is in a token that can easily be bought and sold at the discretion of the holder. While security is a tremendous concern on these platforms, utilizing NFT and DeFi logic to accelerate acquisitions and buyouts is a lucrative pathway to ease transactions in financial systems. The token doesn’t have to be a 100% buyout either! Fractional shares can be used to separate ownership amongst more parties.
There is a lot of potential for this idea (how about a world where DAOs can make buyouts of other DAOs?) but there are just as many hurdles as well: SEC-defined regulation surrounding transferability of legal and financial ownership on digital platforms, trustless ecosystem theory, hard fork resistance, practicing proper due diligence, etc.
Hopefully someone daring and innovative enough sees this article one day and takes it forward to the next level with bold entrepreneurial skills. No matter what, there is a lot of room for the world of NFTs: much more than what you can see on Twitter threads and sports channels.
