On Thursday, crypto exchange Kraken announced that it will acquire NinjaTrader, a futures broker and technology provider, for $1.5bn.
NinjaTrader is a private company and data on how much they make in revenue terms is hazy. Looking at what is available though, $1.5bn is a big valuation.
For example, given NinjaTrader’s reported client numbers and assets under administration, it probably has lower revenues than CMC Markets. And yet CMC’s market cap in dollar terms is about half of what Kraken is paying for NinjaTrader.
But the more interesting story about the acquisition is how it has been structured.
Kraken released some financial results in January. Those showed revenues last year of $1.5bn and adjusted net income of $380m. The true net income figure is almost certainly lower, with Kraken probably adjusting for share-based compensation, in lieu of cash payments.
Revenues in 2022 and 2023, which the crypto exchange also published, were much lower, coming in at $931m and $671m respectively.
Another point which is key to keep in mind here is that Kraken has received minimal outside investment.
The exchange says it has only received $27m in ‘primary capital’, which presumably means issuing new equity in return for cash, since launch in 2011.This is actually impressive and something I think the exchange deserves some plaudits for.
Over the last 15 years, it was easy to raise cash at low rates, forget profitability and turn fundraising into something like an exercise in ‘greater fool theory’. That Kraken didn’t do that and instead seems to have focused on building a sustainable, profitable business is worthy of respect.
However, when you look at that in conjunction with the revenue figures, you have to ask – how did Kraken actually buy NinjaTrader?
If it was a cash-based purchase, it would have cost the company its entire revenues from 2024. The company could not have acquired the firm with outside funding, because it doesn’t have any.
It does not seem plausible that the company has enough cash reserves to have made the acquisition in cash, as revenues have not been high enough.
TradeInformer reached out to Kraken’s media team for confirmation on this but the exchange didn’t comment. It’s notable that the company did not state that this was a cash buy.
Nonetheless, given the above, we can infer that Kraken has probably issued new equity in lieu of cash, which the owners of NinjaTrader will receive as part of the acquisition.
One M&A specialist that TradeInformer spoke to noted that this is probably why the headline price is so hefty – it reflects whatever valuation Kraken has today.
The other interesting point is why the NinjaTrader owners would be willing to do this.
It is hard not to think it is related to a prospective IPO. At the start of this month, Bloomberg reported that Kraken is preparing to go public in the first quarter of 2026. That followed from reports in the middle of last year, also from Bloomberg, that the company was looking to raise $100m before going public.
Kraken’s decision to list, assuming that’s what it does have planned, is likely down to timing.
The new(ish) Trump administration has been much more pro crypto than the previous Biden government was. Trump even spoke at a crypto event on Thursday this week, becoming the first US president to do so.
Ultimately you can talk about fundamentals and prospective growth, but a lot of listings just end up being built on hype. Think back to some of the insane valuations we saw during covid and you get the picture.
Right now there is a lot of hype around crypto and the more congenial regulatory environment will mean listing for digital assets firms is easier too. Plus it’s likely to lead to a higher valuation for the company.
A couple of things could happen when Kraken does have a listing.
One is that the company might have a direct listing. These were very popular during the last market frenzy and would allow Kraken shareholders to cash out easily.
The other option is that the firm does a standard IPO with a six month lock up period. If you imagine the company goes public at the end of Q1 next year, it would mean that, 18 months from now, the NinjaTrader shareholders can start cashing out.
Assuming the hype and high valuations are there, they could end up getting a lot more than Kraken ‘paid’ for them. And – assuming that is what they did – that’s why they will have been happier to take equity over cash.