Ripple Backs Out of Fortress Trust Acquisiton, Citing Change in Strategy

In a surprising turn of events, Ripple CEO Brad Garlinghouse announced today that the financial technology firm will not proceed with its previously planned acquisition of Fortress Trust, a Nevada-licensed financial services provider.

The decision comes just 20 days after the initial announcement of the acquisition.

Ripple’s sudden change of heart marks a notable shift in its expansion strategy, especially in the United States.

Ripple’s Original Investment Plans

Initially, Ripple had expressed intentions not only to acquire Fortress Trust but also to invest in its affiliated companies, including FortressPay. The goal was to leverage Fortress Trust’s existing technology and talent pool to accelerate Ripple’s growth.

Garlinghouse stated that the Fortress team was “incredibly talented and had built products solving real customer problems.”

Shortly after the acquisition announcement, however, Fortress Trust admitted that a security incident had caused substantial financial loss.

A few weeks ago, we signed a letter of intent to acquire Fortress Trust – we’ve since made the decision not to move forward with an outright acquisition, though Ripple will remain an investor in @Fortress_io.

— Brad Garlinghouse (@bgarlinghouse) September 28, 2023

In an interview with Fortune, Scott Purcell, CEO of Fortress Trust, revealed that the company lost between $12 million and $15 million due to an attack involving a third-party analytics vendor. Most of the lost funds were in Bitcoin.

In the wake of this security incident, Ripple, an investor in Fortress Trust since its seed round in 2022, intervened to compensate affected customers. Nevertheless, the company decided to retract its acquisition offer. Garlinghouse clarified that while the Fortress team remained talented, “the outcome is different from what was originally planned.”

In comments to Cointelegraph, Purcell downplayed the acquisition’s cancellation, saying it was “not a big deal” and that the change in plans was unrelated to the security incident. He also emphasized that Ripple remains a great partner and investor in Fortress Trust.

Implications for Other Companies Linked to Fortress Trust

The dissolution of the acquisition deal could also have an impact on other companies that have business relationships with Fortress Trust.

For instance, Swan Bitcoin has been working on a joint venture with BitGo to establish a Bitcoin-only trust company in the U.S., pending regulatory approval. Fortress Trust currently handles custody of records for Swan Bitcoin. With the collapse of the Ripple-Fortress Trust deal, Swan Bitcoin will no longer be involved in Ripple’s business operations in the United States.

The unfulfilled acquisition between Ripple and Fortress Trust opens up questions about the due diligence processes that underlie these high-stakes deals in the financial technology sector. The decision to back out might encourage other companies to reevaluate their merger and acquisition strategies, particularly when one party is embroiled in legal or security issues.

As the crypto industry remains under intense regulatory scrutiny, every strategic move or reversal can serve as a case study for other businesses contemplating similar ventures.