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Apex Fintech's shrinking earnout

Apr 24, 2024
Illustration of a pixelated crypto coin melting into a puddle.

Illustration: Aïda Amer/Axios

When Bakkt agreed to acquire Apex Crypto from Apex Fintech in 2022, the deal was valued as high as $200 million. That tie-up is now on track to pay out less than half of that, based on Axios' analysis of regulatory filings.

The big picture: If Apex Crypto were to hit all its future financial targets, the payout at today's prices would be $88 million at most.

Driving the news: Apex Fintech has been paid about $65.5 million of the $100 million it is eligible for so far, according to financial filings.

  • The vast majority of that was the initial $55 million cash payment in 2023, when the deal closed.
  • The rest came in the form of about 6.1 million shares of Bakkt, which Bakkt valued at $10.5 million. That is from of a total $45 million in shares that Apex Fintech could have earned for Apex Crypto (now known as Bakkt Crypto) hitting certain financial targets in Q4 2022.
  • Peak6, Apex Fintech's parent company, notably sold most of that Bakkt stake in the fourth quarter of 2023, when shares closed between 64 cents and $2.36.

What we're watching: In theory, Apex Fintech could still be paid as much as another $112 million in shares, should the crypto unit hit certain metrics around NFT and crypto trading by the end of 2025.

What they're saying: In a statement to Axios, a Bakkt spokesperson said, "Under the terms of the agreement, Bakkt initially paid $55 million in cash at the closing of the deal, and has the potential to pay up to $145 million in Bakkt stock depending on the achievement of financial targets by the acquired business through 2025, most of which have not been achieved since signing the transaction."

Reality check: But with Bakkt valued at $128.7 million as of Tuesday's close, Apex's remaining earnout is capped at about $23 million.

  • That's because Apex can earn, at maximum, 19.9% of the company's total shares outstanding, based on company filings.

Context: Apex Crypto is now the main revenue driver for Bakkt and is expected to be the core of the company's turnaround strategy.

  • The unit generated revenue of $725.9 million from April 3, 2023, to Dec. 31, 2023. Net loss was about $39.9 million.
  • Bakkt made $780 million in revenue for all of 2023, with net losses of $225.8 million.

The bottom line: The deal was billed as potentially being worth $200 million. Today it's worth at most about $88 million.

  • The tie-up doesn't seem to have worked out anywhere close to what the two companies were expecting.

Apex declined to comment.

Data: S&P Capital IQ; Note: Galaxy Digital trades in Canada; Chart: Axios Visuals

While shares of Galaxy Digital and Coinbase have received a bump from bitcoin reaching new highs, investors have been less confident in Bakkt.

  • Shares of the company are down 91% since April 2022.
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