He Was Always at the Center of Major Crypto Exchange Stake Deals [K-INVESTORS]

Hong Youngkwan, Partner in Samil PwC's FS&RS Group
Advised on Korea's First Cryptocurrency Exchange Valuation in 2019
"Expanding Advisory to Stablecoins and Token Securities"

Since the beginning of this year, major financial companies have actively traded stakes in cryptocurrency exchanges. Notable deals include Mirae Asset Group's acquisition of Digital X (formerly Korbit), and Hanwha Investment & Securities and Hana Financial Group's acquisitions of stakes in Dunamu. At the center of all these deals was Hong Youngkwan, a partner at Samil PwC. Hong advised on the stake acquisitions. His experience building a valuation methodology while taking on the assessment of Korea's first cryptocurrency exchange, a task everyone else had shied away from, became the "seed" for this work. The Financial Services & Restructuring Solutions (FS&RS) group in the firm's Deals division said it aims to become a team with advisory expertise spanning digital finance, including stablecoins and token securities, while serving as a bridge between traditional financial companies and the cryptocurrency sector.

On October 27, Hong Youngkwan, a partner at Samil PwC, met with The Asia Business Daily and named the valuation of an exchange conducted in 2019 as the cryptocurrency-related deal he remembers most. The valuation, commissioned by a shareholder of a cryptocurrency exchange, was the first of its kind in Korea. At the time, the other Big Four accounting firms in Korea—Samjong, EY Hanyoung, and Deloitte Anjin—had not approved advisory work related to cryptocurrency exchanges at a global level. They cited the high risk, saying the value of the coins could not be accurately determined. However, Bae Hwaju, then head of the Deals division, boldly approved the engagement, and Hong's team took on the advisory work. "I thought the cryptocurrency market would inevitably grow and that there would be more work in this field, so I believed it was important to carry out the valuation as a symbolic step," Hong said.

Hong Youngkwan, a partner at Samil PwC, poses for a photo. Photo by Yoon Dongju

Building a methodology through firsthand experience... The "soil" for cryptocurrency advisory

Of course, the team faced difficulties from the outset. There were almost no benchmarks for valuing an exchange, no established valuation methodology, and few comparable transactions. Bitcoin itself had surged in 2017 before plunging by more than 80% the following year. Depending on the assumptions used, its value could differ by more than 10 times, adding to Hong's challenges. "Regulation was even less developed than it is today, and it was a time when we wondered whether exchanges would be able to continue operating," he recalled.

With the mindset that "if there are no standards, we should create them one by one," Hong and his team set about developing a methodology. They normalized earnings to remove noise from profits by using results spanning multiple years, including both boom and downturn periods, and also examined operating metrics such as trading volume and user base. They drew on overseas cryptocurrency exchange investment cases and listed companies with similar characteristics, such as securities exchanges. They also presented a range of valuations under different scenarios, depending on how regulations might be established. "The framework we developed then remains the basis for valuing exchanges today," Hong said. "That experience showed us that cryptocurrency deals ultimately follow the same principle as financial institution deals: regulation and trust determine value."

Hong Younggwan, a partner at Samil PwC, is being interviewed by The Asia Business Daily. Photo by Yoon Dongju

Valuing and conducting due diligence on cryptocurrency exchanges differs from traditional financial companies

Hong explained that due diligence on cryptocurrency exchanges differs from due diligence on financial companies in many ways. For financial companies such as banks, capital forms the basis of their business, making the price-to-book ratio (PBR) a key metric. Exchanges, by contrast, are platform businesses with relatively little capital and revenue generated from trading fees, so their value is determined by earnings potential and user base rather than book value. In due diligence, it is also important to use on-chain data to confirm that customers' deposited coins are actually held in wallets. For example, a small amount can be sent to a publicly disclosed exchange wallet address, and confirmation of the deposit can be used to verify that the wallet exists. The exchange is then asked to transfer the funds from that wallet to another address to confirm control of the wallet. This methodology draws on PwC's global framework and was developed in-house through repeated due diligence engagements.

"Financial companies are actively trading stakes to secure an early lead in future financial infrastructure"

Hong said financial companies are seeking a "first-mover advantage" through the wave of cryptocurrency exchange stake deals by major financial companies this year. "(Financial companies) believe it would be too late to enter the market after the regulatory framework is finalized," he said. "There are only five exchanges that support Korean won markets, and once the rules are finalized, uncertainty will disappear and prices will rise. They therefore believe now is the time when they can have greater negotiating power." Their intent is also to secure the infrastructure linking token securities and stablecoins. For example, if stablecoins are connected as a payment method and on-chain settlement is implemented, with both securities and funds moving on the blockchain, exchanges would become the "gateway" to that infrastructure. Hong added that financial companies are also seeking to work with exchanges to attract younger cryptocurrency users as customers and diversify revenue through new fee-based businesses.

Hong Younggwan, a partner at Samil PwC, is being interviewed by The Asia Business Daily. Photo by Yoon Dongju

"Expanding advisory work to stablecoins and token securities"

The FS&RS group in the Deals division, where Hong works, handles mergers and acquisitions (M&A) for financial institutions. It advises on sales and acquisitions, due diligence, and valuations involving banks, insurers, securities firms, and capital companies. Among the transactions Hong remembers from his time at the firm is Hana Bank's investment in Vietnam Joint Stock Commercial Bank for Investment and Development (BIDV), which the group advised on. In 2019, Hana Bank acquired newly issued shares in Vietnam's largest state-owned commercial bank, securing a 15% stake. The investment totaled approximately 1 trillion won, the largest-ever strategic overseas equity investment by a Korean bank. It was also the largest M&A in the history of Vietnam's banking industry. "It was challenging that our negotiating counterpart was the State Bank of Vietnam—in other words, the government—which held more than 95% of the shares, and that it was difficult to rely on financial statements prepared under local accounting standards," he said. "Still, I'm glad the investment was successful enough that the value of the stake doubled in seven years." The strategy marked a shift from focusing solely on lending to Korean companies and establishing banks overseas directly to investing in leading local financial institutions. It offered lessons for the industry, with Japanese banks following suit.

Hong said the FS&RS group would focus on three areas in preparation for a restructuring of the cryptocurrency industry. First, he expects that once regulations on major shareholders' stakes are finalized, existing exchanges will need to divide their holdings or bring in new shareholders, putting exchanges that only support coin markets and cannot easily facilitate won trading up for sale. "We will support the process on both the sell and buy sides," he said. He added that the group would advise on shareholder composition and transaction structures as financial companies and fintech firms (finance + technology) establish more joint ventures once rules on stablecoins and token securities are finalized. It will also support foreign investors entering Korea and Korean businesses expanding overseas. "Our goal is to become the advisory firm financial companies turn to first when they enter the digital finance era, thinking, 'Samil is the best at this,'" Hong said.

This content was produced with the assistance of AI translation services.