Crypto Mergers & Acquisitions: Legal and Structural Considerations

Why are mergers and acquisitions becoming more common in the crypto industry?

The crypto sector has matured rapidly, leading to an increase in mergers and acquisitions (M&A) as companies seek to expand their capabilities or rescue distressed assets. During early explosive growth, many crypto businesses focused on organic expansion. Now, as the industry consolidates, larger or better-capitalized players are acquiring others to gain technology, talent, user bases, or regulatory footing. For example, in the past few years we’ve seen deals like exchange platforms buying competitors or complementary services (trading firms acquiring wallet providers, etc.).

Market conditions have also played a role – the cyclical downturn after the 2021 boom left some crypto firms struggling financially, prompting acquisition as an exit or survival strategy. Notably, the Middle East, and the UAE in particular, has attracted significant crypto investment, which drives M&A activity. The GCC region received about $390 billion worth of crypto value in 2022–2023 despite a bear market, reflecting intense interest in the sector. This influx encourages established global companies to acquire local startups to enter the market, and vice versa (for instance, India’s largest exchange CoinDCX acquired UAE-based BitOasis in 2024 as a gateway into the Middle East).

In short, as the crypto industry evolves from a collection of startups into a more integrated ecosystem, M&A has become a strategic tool for growth, consolidation, and building credibility through combined strengths.

What is the regulatory stance of the UAE on acquisitions of crypto companies?

The UAE generally welcomes growth in the crypto sector, including mergers and acquisitions, but it expects regulatory compliance during these transactions. At the federal level, the SCA (Securities and Commodities Authority) oversees crypto asset activities (except in financial free zones) and has implemented a regulatory framework for Virtual Asset Service Providers. Any acquisition involving a UAE-licensed crypto company will likely require regulatory notification or approval. For instance, if a crypto exchange licensed by VARA in Dubai is being acquired, VARA’s prior approval is needed for a change in ownership above certain thresholds (a common requirement in financial licenses to ensure the new owners are fit and proper).

The recent SCA-VARA cooperation agreement solidifies this stance – it established that a VASP licensed in one jurisdiction (like VARA in Dubai) should be recognized federally, but also that both regulators will coordinate on supervision and enforcement. This implies that in an acquisition, the regulators will collaborate to vet the incoming owner and ensure continuous compliance.

Moreover, UAE laws on foreign investment and competition can come into play. While 100% foreign ownership of UAE companies is now allowed in many sectors (including tech/crypto), acquisitions by foreign entities might still be reviewed under UAE’s competition (antitrust) law if the combined entity could dominate a market. So far, the crypto market is fragmented enough that anti-monopoly issues are rare, but it’s a consideration as major players merge.

In the financial free zones (DIFC and ADGM), any acquisition of a regulated firm triggers their own regulator’s approval process. For example, the DFSA in DIFC or the FSRA in ADGM will scrutinize proposed changes in control of an authorized firm.

In essence, the UAE’s stance is not to prohibit crypto M&A – on the contrary, the country’s leadership often cites becoming a global crypto hub, so supportive moves are common – but to ensure that post-merger, the entity remains within the regulatory guardrails. Buyers should be prepared for thorough due diligence by regulators on issues like ownership structure, financial soundness, and the business plan for the acquired entity (especially if the acquirer is overseas or less known to local authorities).

What legal, tax, and compliance challenges arise in crypto M&A deals in the UAE?

Crypto-related M&A deals face a unique mix of challenges:

Regulatory approvals and licensing: As noted, securing the regulator’s blessing is a critical step. A key challenge is timing – getting approval for a change of control can take time, and any delay might derail a deal in the fast-paced crypto market. Each regulator may impose conditions; for example, the acquirer might need to commit to certain capital reserves or cybersecurity standards as part of the approval. If the target operates in multiple jurisdictions (say, licensed in Dubai and also serving other countries), the deal may need multi-jurisdictional regulatory coordination.

Due diligence complexities: Traditional M&A due diligence (financial, legal, operational) takes on new dimensions with crypto firms. Buyers must assess technical aspects like the soundness of the target’s smart contracts or blockchain infrastructure, the security of its custodial systems, and the status of its crypto asset reserves. They also need to diligence less tangible assets – for instance, the value and legality of any proprietary tokens the target has issued. If the target conducted an ICO or token sale, the acquirer must evaluate potential liability (were proper disclosures made? could regulators deem the token a security?). Additionally, compliance due diligence is paramount: the buyer should review the target’s AML/KYC records, transaction monitoring systems, and any history of regulatory breaches. In the UAE, where regulators have penalized firms for non-compliance, acquiring a company with past AML failings could saddle the buyer with future enforcement risk.

Legal structuring and documentation: Crypto M&As might be structured as share purchases, asset purchases, or token purchases, and each has legal implications. In a share purchase (buying the equity of the company), the acquirer inherits all liabilities – this can be risky if the target has unresolved legal issues (e.g., an investigation by a regulator or outstanding consumer claims for lost funds). Asset purchases can mitigate this, but in crypto, “assets” include user databases, platform code, and possibly the crypto holdings and token inventories. Transferring these can be complex – for example, how do you transfer a cryptocurrency exchange’s customer accounts and wallets in a legally sound way? Agreements need very specific reps and warranties around the status and control of crypto assets. Another challenge is intellectual property: ensuring the target actually owns its software/IP (and that key developers haven’t simply open-sourced critical code unless intended). If the target DAO or protocol is open-source, the value may hinge on community goodwill, which legal documents struggle to quantify or guarantee.

Tax considerations: The UAE famously has no capital gains tax and until recently had no corporate tax on most businesses – this makes domestic M&A tax-neutral in many cases. However, the UAE’s new 9% federal corporate tax (effective 2023 for many companies) introduces some considerations. Depending on the structure, the transaction could have corporate tax implications (for example, if assets are sold at a gain inside a taxable entity). Free zone companies can still enjoy tax holidays if they meet substance requirements, which is relevant if the crypto firms are in a free zone like DMCC, ADGM, or DIFC. Cross-border deals may trigger tax in the seller’s home country or withholding tax on certain payments (though the UAE often has treaties to reduce this). Also, if an acquisition deal is paid in cryptocurrency or tokens rather than cash, that raises novel tax and accounting questions – how do you value the payment, and could that create a taxable event? Careful planning with tax advisors is needed to avoid pitfalls, even in a low-tax environment like the UAE.

Compliance integration: Post-acquisition, merging the compliance programs of two crypto businesses can be challenging. The unified entity will need a coherent set of policies for AML, cybersecurity, data protection, and reporting to regulators. If one company was less mature in compliance, the combined company must uplift those standards immediately to whichever is stricter (often the requirement of the jurisdiction with the toughest rules among those involved). For instance, if a UAE licensed entity acquires an unlicensed foreign crypto company with lax KYC, the UAE standards must be implemented for all users to avoid regulatory arbitrage. This could mean off-boarding non-compliant users or investing in new compliance infrastructure – costs and decisions that ideally should be factored in during the deal negotiations. Furthermore, changes in data residency laws (UAE has new personal data protection laws) might affect how user data from the acquired firm is handled.

In summary, crypto M&A in the UAE demands a strong focus on regulatory and technical due diligence, meticulous legal structuring to handle digital assets and liabilities, and planning for a seamless compliance merge. Missing any of these can turn a promising deal into a post-merger headache.

How are crypto M&A deals typically structured globally, and what are best practices from those deals?

Globally, crypto M&A deals often mirror traditional tech M&A in structure, with some twists. Many deals are structured as acquisitions of equity (shares or tokens) to gain control of the target’s platform and users. In cases where liability containment is crucial, buyers might opt for an asset purchase, cherry-picking desirable assets (IP, user agreements, crypto holdings) and leaving behind unwanted liabilities in the old corporate shell. Best practices from global deals include:

Extensive due diligence with specialized experts: Successful acquirers involve blockchain security auditors to review the target’s smart contracts and wallets, and compliance consultants to vet the target’s regulatory status in all jurisdictions. They don’t rely solely on the target’s own representations; independent audits of wallet balances (proof of reserves) and code reviews are common. For example, when exchanges have been acquired, acquirers sometimes perform on-chain analysis to ensure there are no hidden liabilities like missing funds.

Earn-outs and escrow in deal terms: Given the volatility in crypto markets, buyers and sellers often use dynamic pricing structures. An earn-out means part of the purchase price is paid later based on performance targets (e.g. user growth or revenue post-acquisition). This protects buyers if the business doesn’t perform as expected. Escrows are used to hold a portion of the purchase price (sometimes in stablecoins or even fiat) for a certain period to cover any undisclosed liabilities that surface. If, for instance, a regulatory fine comes through after closing for past conduct, the buyer can be indemnified from the escrow funds.

Token consideration and lock-ups: Some deals, especially where both companies have their own tokens, involve payment in tokens. A global best practice is to structure such payments with lock-up periods to avoid flooding the market. Also, if key founders are being paid in the acquirer’s tokens or stock, vesting schedules can align their incentives to stay and continue building value. When CoinDCX acquired BitOasis, it was reported that BitOasis would continue to operate under its existing licenses and brand – implying a structured integration where the acquired entity maintains operational continuity. This is a common practice: let the acquired company run independently for a period to retain user trust, while gradually integrating back-end functions.

Regulatory liaison and “fit-and-proper” preparations: In jurisdictions like the UAE, UK, or Singapore, part of the best practice is early engagement with regulators. Prior to announcing the deal, companies quietly approach the regulators to discuss the change of control and any concerns. Globally, deals have been delayed or even blocked because regulators were uncomfortable with the acquirer (perhaps due to past compliance issues or lack of experience). To prevent this, acquirers perform internal checks to ensure they meet all “fit and proper” criteria (no criminal records for directors, strong financials to support the acquisition, etc.). They prepare a clear post-merger business plan to show regulators how the acquisition will strengthen, not weaken, compliance. In some cases, firms have pre-negotiated conditions with regulators – for instance, agreeing to hire a certain compliance officer or invest in better systems as part of the approval.

Integration of tech and finance systems: Post-merger integration planning is a best practice often considered upfront. This includes how to merge different cryptocurrency custody solutions, trading engines, or blockchains that the two firms use. A phased integration can reduce risk – for example, keep two exchanges’ order books separate initially and later merge liquidity once systems are tested to work together. Similarly, merging treasury management (the handling of the firms’ crypto reserves and fiat) needs protocols to avoid mismanagement. Global acquirers often adopt the more robust system of the two or even bring in third-party custodians to safeguard assets during the transition.

By following such best practices – rigorous due diligence, flexible deal structuring, regulatory cooperation, and careful integration – companies increase their chances of a successful crypto M&A. These practices help mitigate the inherent risks of combining two fast-moving crypto businesses and set the stage for the combined entity to truly achieve the strategic goals of the merger.

How can buyers and sellers in the UAE mitigate risks and navigate regulations during a crypto M&A transaction?

Both buyers and sellers should take a proactive, transparent approach to address risks in a UAE crypto M&A deal:

Engage regulators early: As mentioned, initiating dialogue with SCA, VARA, or the relevant free zone authority early in the process can smooth approval. By presenting the acquisition as a positive development (e.g. the target will have more resources to enhance compliance under the new owner), the parties can gain regulatory goodwill. Early feedback from regulators can also be incorporated into the sale and purchase agreement obligations. For example, if VARA indicates that the acquired entity must migrate certain customers or discontinue a product to be approved, the deal can be conditioned on completing those actions.

Contractual safeguards: The sale contract should include strong representations, warranties, and indemnities related to crypto-specific risks. Buyers should get reps from the seller that all customer assets are accounted for, that there have been no hacks or loss of keys not disclosed, that the company isn’t knowingly facilitating illicit transactions, and that all token issuances were in compliance with applicable laws. If any material issues are identified, specific indemnities or price adjustments should be included. From the seller’s perspective, if certain regulatory approvals are required, the contract should clearly allocate the responsibility and timeline for obtaining them, and what happens if approval is denied (usually, a termination right).

Staged transition and integration: Mitigate operational risk by not rushing the integration. For example, the companies might operate separately (under a hold-separate arrangement) until all regulatory approvals are in and systems are vetted. This prevents a scenario where operations are merged and then an unforeseen regulatory issue forces unwinding parts of it. In the UAE context, if a global firm acquires a local exchange, they might decide to keep the local entity intact to satisfy domestic licensing, while gradually integrating branding and technology. This staged approach ensures that if any hiccups occur (technical or regulatory), they can be isolated and addressed without collapsing the entire business.

Communication and trust: Because crypto users are global and social media is influential, both parties should manage communications carefully. Announce the deal with clear messaging on how it benefits customers and what (if any) changes they should expect. One risk in crypto M&A is user flight – if users fear an exchange is being acquired by a less reputed entity, they might withdraw funds. To counter this, emphasize the strength and compliance focus of the new combined entity. In the BitOasis acquisition by CoinDCX, for instance, it was stressed that BitOasis would continue operating independently under supervision of its regulators, reassuring customers that there’s no disruption or lowering of standards.

Expert advisory team: Navigating legal, technical, and financial aspects requires the right experts. Retain law firms experienced in both UAE financial regulations and international crypto deals, hire blockchain forensic specialists to double-check the integrity of crypto assets, and use reputable auditors who understand digital assets for financial scrutiny. This not only helps identify and solve issues pre-deal, but also signals to regulators that the parties are handling the transaction responsibly. UAE authorities appreciate when firms use top-tier advisors, as it often results in more robust compliance post-merger.

In essence, mitigating risk in crypto M&A is about foreseeing challenges and addressing them upfront. The volatile nature of crypto and the patchwork of regulations mean surprises can lurk around the corner. Buyers should be especially vigilant (caveat emptor), but if both sides commit to transparency and regulators are kept in the loop, most risks can be managed. The result will be a deal that not only succeeds legally but also sets the foundation for the merged company to thrive under UAE’s progressive crypto regulatory environment.