Superhero and Swyftx's $1.5 billion merger falls apart

A merger between cryptocurrency exchange Swyftx and share-trading platform Superhero worth $1.5 billion has come undone, with the two this week announcing a demerger.

Announced overnight - just weeks after Brisbane-based Swyftx insisted that the deal was going ahead as planned - the demerger means Superhero will return to being owned by the co-founders of the Sydney-based company.

It also comes amid volatility in the cryptocurrency market, and the high-profile collapse of FTX - Sam Bankman-Fried’s now-bankrupt crypto trading platform.

In a short statement sent to Business News Australia, Superhero CEO and co-founder John Winters confirmed the dissolution of the merger.

“We are announcing today that Superhero is demerging from Swyftx. After discussions with Swyftx’s leadership and its board, we came to the decision that demerging is in the best interests of both Superhero and Swyftx, our teams and our customers,” Winters said.

“The volatility in the market as well as the current regulatory environment has made it increasingly difficult to achieve the initial vision that inspired the merger earlier this year. Superhero will return to being independently owned by myself and my co-founder Wayne Baskin.

“We thank Alex, Angus and the Swyftx team for their support over the last six months and wish them all the best for the future.”

Superhero would not confirm the terms of the demerger, or whether Swyftx is actually selling the trading platform back to its previous owners as reported by the Australian Financial Review.

According to the AFR report, a consortium of investors who initially bankrolled the broker two years ago including Afterpay co-founder Nick Molnar and Zip Co (ASX: Z1P) co-founder Larry Diamond, alongside fund managers Regal, Wilson Asset Management and Ophir will also once again become owners of Superhero.

Swyftx CEO and co-founder Alex Harper, who alongside co-founder Angus Goldman won the 2022 Australian Young Entrepreneur Finance Award in November, said the demerger outcome was ‘disappointing’.

“It is a disappointing outcome but ultimately, we took this decision in the best interests of both Superhero and Swyftx, as well as their customers,” Harper said.

“The policy environment has changed significantly since we announced the merger and neither party has been able to realise the vision of the merger in any meaningful way. We currently face a scenario where there might be no realised benefits to customers from the merger until 2024 at the earliest.

“Under these circumstances, we felt it best to focus on our core offering. The decision puts Swyftx in a strong position and frees us up to focus on consolidation and growth opportunities in digital assets.”

For Swyftx, the announcement comes after the company laid off 90 employees - representing approximately 35 per cent of the entire workforce - as it hunkered down for the ongoing bear market environment for crypto assets.

Earlier this year, the company had let go of 74 staff in August, with the company claiming at the time it was a “hard decision but a prudent one that ensures our costs are compatible with this extended period of economic uncertainty”.

The news also comes a month after Swyftx confirmed it was tapping investors to raise growth equity for expansion into new markets.

At the time, a spokesperson confirmed that this raise was simply business as usual, and had nothing to do with shoring up funds for day-to-day operations following the FTX collapse and the ripple effect it had on the crypto sector.

“Any suggestion that the intention would be to use a potential raise to fund day-to-day operations is simply untrue,” the spokesperson said.

At the same time, when questioned by Business News Australia as to whether the merger was still going ahead, the spokesperson said it ‘100 per cent’ was locked in.

The merger’s collapse follows a tumultuous period for companies involved in the crypto space, impacted by a loss of consumer confidence arising from the FTX debacle.

Perth-based blockchain technology and investment firm DigitalX (ASX: DDC) recently reported a 26.8 per cent fall in its digital assets fund in the month of November, with chief executive officer Lisa Wade blaming the fall on the contagion that flowed from the collapse of Bahamas-based FTX.

The value of the group's holdings of Bitcoin and other digital assets stood at $11.9 million as at 30 November, compared to $16.6 million a month prior.

Further, approximately 60,000 Australian customers were affected earlier this month by the fall of two exchanges - Brisbane-based Digital Surge and the Australian subsidiary of Sam Bankman-Fried's bankrupt behemoth.

The directors of Digital Surge made the decision to appoint KordaMentha on 7 December to protect the interests of customers and creditors, and have also put forward a rescue package including $1 million of their own money and a promise to use all profits over the next five years to be credited into customer accounts.