Undergoing a merger and acquisition is never easy, just ask any team or person charged with making it happen.
But what happens when it occurs in the throes of a global pandemic?
Just ask Greg Tusar, one of the Co-Founders of Tagomi, the upstart two-year-old, 20 person digital asset fintech/trading firm recently acquired by Coinbase. Sources familiar with the deal said the purchase was estimated to be upwards of $100 million. Tusar is a wunderkind in the US capital markets, who made his reputation at Goldman Sachs where for 13 years rose to be Global Head of Electronic Trading before leaving to go to KCG and be its Head of Client Market Making and Execution Services group.
So, what makes a capital markets veteran switch to the newest asset class and market?
“I’d been interested in crypto for some time, but it really wasn’t until 2017 that I’d started to explore the space a bit more, Tusar began. “I was fortunate to meet my two co-founders in late 2017 as they were starting to to plan what became Tagomi in 2018. We found we had a complementary set of skills in both crypto and traditional finance which I thought was really important for success. When we started, the frictions involved for anyone looking to transact in amounts of crypto any larger than retail size were enormous.”
This similarity in helping institutions get involved in crypto like equities, including other common denominators as Tusar put it, made his choice to join Tagomi and now Coinbase appealing and sealed the deal.
“Spreads were wide, processes were very manual, the availability for financing and lending was very nascent, and the market structure was quite complex and fragmented – there wasn’t anything that connected the various steps involved together into a cohesive whole,” Tusar said in comparing equities to crypto. “That all pointed to a solution that borrows ideas from trading securities — liquidity aggregation, process automation, integrated prime services, and an agency model to help clients in an unconflicted way. The things that drew me to that were the ability to learn about a new potential asset class during its still early stages, as well as the ability to help people save quite a bit in terms of transaction costs and time. The incremental savings available in the securities world are quite small in comparison for a given amount of effort.”
New York-based Tagomi helped its clients execute crypto trades via multiple crypto trading venues, such as Coinbase and Binance – wherever it can help buyers and sellers find best execution. Tagomi raised $28 million in venture capital before the Coinbase deal was announced, and it was valued at $72 million when it last raised funding in early 2019.
The addition of Tagomi to Coinbase helps the latter benefit from Tusar’s own technology pedigree and the fact Tagomi has deep knowledge and connections within the crypto space. Add to this, Tagomi and Tusar want to drive institutional interest in the crypto markets, something Coinbase is attempting to do via its Coinbase Prime platform.
Tagomi and Coinbase opened a dialogue last year but the talks never led to a closed deal. Fast forward to now and the deal is, for all intents and purposes, complete and signed pending regulatory review.
“Taking a step back, as a firm we evaluated a number of different options such as doing another funding round. But we found this path to be the best way for all to accelerate our respective roadmaps,” Tusar said. “What we do collectively, makes our firms very complementary – execution for Coinbase and we get one of the biggest liquidity pools and strong custody. We are very similar in some ways and complementary in others.”
So, who gets what? Coinbase’s balance sheet, which includes $8 billion in bitcoin and other cryptocurrencies stored through its institutional custody business, will help Tagomi serve large customers. And on the flip, Tagomi clients can tap into Coinbase’s deeper pockets and custody services. Last year, Coinbase bought cryptocurrency custody company Xapo for $55 million.
“This really is a synergistic combination in a host of ways,” Tusar began. “Coinbase has the deepest and most liquid books among any regulated exchange, it has an incredible brand with consumers and a global reach. Building on last year’s acquisition of Xapo, it also has the world’s largest and most trusted custodian – which gives it a huge advantage as the industry finds ways to launch features commonly associated with traditional prime brokerages. Tagomi brings a team with a unique combination of crypto expertise and deep institutional knowledge, along with the experience of building trading tools that institutional investors expects. It also brings the expertise of understanding how to cover Institutional type clients and tailor an offering to suit their particular needs. I think the combination of those capabilities together with Coinbase’s strengths creates a a comprehensive offering unlike any other. I think crypto will be like most other industries in the end – it will be a scale game. Coinbase is well established to be the global winner in a space where scale economies are key to success.”
As with all mergers and acquisitions, melding two firms can be daunting. Plus, add the current COVID-19 work-from-home environment where meetings are being held via Zoom and other digital platforms and a merger can be unnerving. Nether firm has opened its New York doors nor have many staff met in person which can make for a less personal experience. But given the run up from last summer’s early acquisition discussions has allowed Tusar and the firm to counter any adverse COVID complications.
“Tagomi as a standalone company has made tremendous progress establishing itself as an Institutional broker with a comprehensive offering, Tusar said. “To get to the next level, though, we need access to resources in the form of both balance sheet/capital, global scale, and human capital. In looking at our various strategic options, this was the best fit. We are working towards securing regulatory approval to be able to close soon.”
Tusar confirmed Tagomi has an advance team in place discussing how best to incorporate smart routing and algorithms into the Coinbase environment, and how best to seamlessly connect execution together with Coinbase Custody.
“We are also working closely with Coinbase’s global OTC desk to ensure high touch execution at Coinbase are afforded all the same tools, so clients have the option of trading themselves, or easily handing off larger orders or orders that require care to the desk,” he said. “Of course, the full integration is still dependent on regulatory approval. Most M&A is successful on the basis of people and culture, and to that extent we’ve found our cultures to be very similar, which is giving us a head start in accomplishing the technical integration when approved to do so.”
Tusar told Traders Magazine that while working from home has had its perks it has also had its drawbacks. Much of Wall Street deal making and mergers are done meeting people involved around in large conference rooms, over dinners and in person and this is what he misses. But working from home also has its positives, he added, as productivity can be maximized without a commute or office distractions.
“I must say I have some mixed emotions on this topic. Having spent the better part of almost 30 years commuting into New York City, and reclaiming that time has been a real gift both personally and from a productivity standpoint,” he said. “However, I still feel like quite a bit of team building and teaching/mentoring happens best in person, and so am looking forward to a workplace which is perhaps a bit more flexible than in the past, and allows for a combination of both. The remote work environment creates certain challenges while in the early phases of merging and integrating teams and cultures, but as a small company we had learned to work well remotely already, and together with the cultural similarities above think we will easily overcome these.”
So, what does the future hold for Greg Tusar?
While Tusar will remain with Coinbase throughout the acquisition/integration, he was tighter lipped as for what will happen afterwards.
“I’m excited to play a role at Coinbase which is in keeping with what I’ve generally done throughout my career, which is some combination of spending time with customers, working on building product features, helping ensure smooth operations, helping continue to build and lead the team, and working closely with teams both internally and externally on market structure regulation and evolution,” he said. “I’ll join officially once we’ve received the requisite regulatory approvals – but suffice to say, I’m excited at the prospect of digging with our teams.”
But what about his other capital market contemporaries? Will they be so inclined to leave the mature equities marketplace and venture into the crypto space?
“I think crypto is quite unique in many ways – it would be a mistake to draw a straight line between the evolution of liquid securities trading and crypto, though I think they have quite a lot in common,” he said. “Those things in common for now include the need for smart routing for liquidity aggregation, and following the same evolutionary arc from high touch trading for even liquid products to much more electronic trading. Crypto has followed the same path that equities took in terms of the transition of liquidity provision to ‘HFT-like’ firms from, say 2002 to 2010, but did so over a year or two period. I think where crypto ultimately ‘wants’ to go in terms of evolution will look very, very different from traditional finance though. I do think more people will migrate into crypto/digital assets over time as it represents a new and still fairly wide-open space. It’s certainly had its share of cycles already in the past few years, but directionally it’s still growing quickly and for those who’ve been in traditional securities trading for some time looking to continue to learn and grow, I think this represents a great opportunity.”