EP 42 - The Great Reset with Michael Ashe

Mike Novogratz (0:00)

Hi, everyone, I'm Mike Novogratz, and this is Next With Novo. Welcome, everybody, another episode of Next With Novo, crypto-focused. I'm here today with Michael Ashe. Michael runs the investment banking advisory business at Galaxy.

You know, it's been three months since the great 2022 crypto crash, and I figured it was a good idea to get Michael's perspective on our industry. He sees a lot, you know, M&A, people trying to raise capital. And so, Michael, welcome.

Michael Ashe (0:41)

Thanks for having me.

Mike Novogratz (0:43)

We were just talking, you know, this term crypto winner kind of is a shitty term. Give me your idea.

Michael Ashe (0:49)

I hate the term. I think it's antiquated.

I think maybe when you looked at like the past resets, let's call them, I think it made more sense, right? Because effectively what happened was you had capital falling away from the system, right? And the big difference, and we've heard a bunch of people say it, Dan Moore had said it at one of the conferences recently, we all of a sudden have real institutional long-term capital in the space, right? And over the past three months, and what everyone is referring to as this new winter, we're seeing partnerships continue to happen. We're seeing institutions continue to come in, whether it's BlackRock with Coinbase or otherwise, right?

And we're still seeing, though on the early stage side, capital being put to work. And I think once you start to see some more macro indicators moving in the right direction, hopefully today is a start of that, I think you'll see even mid to later stage stuff starting to become more active and more prevalent.

Mike Novogratz (1:44)

As you're hearing it loud and clear, this is not a crypto winner.

Galaxy is making that claim right now. We're going to call it The Great Reset, maybe. The washout of horribly managed businesses.

The washout of excessive risk taking, but not a crypto winner. So Michael, tell us a little bit what you're seeing. You know, the M&A space. There's one story that, oh my God, it's so busy. Sam Beckman Fried has been gobbling up companies. But what's the reality?

Michael Ashe (2:12)

I think the reality is that if you look at the past, call it two years, it's been incredibly difficult for M&A to get done in this space. And the reason for that, very simply, is that there's been such an abundance of capital. At almost whatever valuation, if you're a highly sought after company, you choose it to be.

And so this idea of a control premium that exists in traditional markets where to own a company outright, you need to pay a premium over what would theoretically be kind of market value, it never existed. So you could actually raise capital at a much higher valuation than you could sell your business at. And so, rightfully so, no one is going down the path of M&A. Fast forward to three months ago, the evaluation's decimated, really across the space. And so all of a sudden, I think every company big and small is reassessing what their M&A strategy is. I think outwardly a lot of the large cap names in the space are saying they want to be aggressive, they want to do these roll up strategies, which all make sense. We're certainly not yet seeing that level of aggressiveness that I think is outwardly been kind of told to the market. There's still lots of conservatism. There are still certain parts of the space that are more sought after than others.

And so I still believe that there is some fear amongst some of these companies as it relates to what their M&A strategy actually looks like, even though I would tell you right now, almost every company that we talk to has or will shortly contemplate a potential sale.

Mike Novogratz (3:43)

Interesting, so not a lot happening yet, but things will happen. Listen, there's a little bit of a tale of two cities the way I see things. There's companies that have a whole bunch of cash that raised early, are raised at the right time. There are a lot of companies that are smaller, they're gonna run out of cash.

What's the timing of that?

Michael Ashe (4:05)

When do you see those guys waking up to the new reality and saying, oh, shit, we're definitely seeing companies who are well capitalized lining up to figure out what their M&A strategy is to try to be a buyer. That's happening.

On the other hand, I think what's interesting, and we've talked about this in the past, is that you have companies who, maybe they raised capital 12 months ago, maybe it was 18 months ago, who right now are appropriately capitalized, but will likely need to raise capital at some point in the next 12 give or take months. And if we don't see a significant uptick from a capital markets perspective, if we don't see investors underwriting those types of deals, and we do believe that investors generally are going to be a bit more conservative, they're gonna do more diligence, they're gonna be probably a bit more thoughtful as it relates to where they deploy that capital, we're gonna see a number of companies come into liquidity issues over the next 12 months. They probably won't be the big name brand companies that we've been talking about for the past three months, but that's where I think you'll see a lot of M&A, right? Where companies are approaching that liquidity issue, all of a sudden recognize the matter, put themselves up for sale and it becomes a fire sale.