OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
Mergers & Acquisitions
Mergers & Acquisitions Summary
Each week, Viridian publishes insights and analysis on completed M&A transactions in the prior week. Our analysis includes:
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- M&A Market Commentary
- Public and Private Companies
- Buyers & Sellers
- YTD M&A Analysis
- M&A by Industry Sector
- Deal Structure and Valuation Analysis
- Pending Deal Risk Arb Analysis
- Valuation Gap Analysis
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Transaction Activities
Week ended 08/18/2023
- Two M&A transactions closed this week for disclosed transaction value of $35.00M compared to one transaction for $3.78M in the prior year.
YTD Activities
- Eighty transactions totaling $1.24B have closed YTD, compared to one hundred and twenty-five transactions for $11B last year.
- The 2023 YTD average transaction size of $15.53M is the lowest in recent years.
Pending Risk Deal Arb Analysis
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- On the final Friday before the deal was canceled, the Cresco/Columbia deal spread widened to 107.2. No one can pretend to be surprised this deal was canceled. The risk arb spread was inconceivably wide by February and widened further after that. Ultimately, we chalk it up to the near shutdown of the cannabis capital markets. No new investors have been forthcoming to finance the large asset purchases necessary to get the deal done. A sharp divergence in the market valuation of the two companies was another factor. Based on the original deal terms, Cresco was paying much too high of a premium over the trading value of Columbia Care.
Valuation Gap Analysis
- Recalibrated Valuation Gap
- Over the last year, several of the smaller companies we had been monitoring lost analyst coverage, and several of the larger companies have drifted significantly lower in size due to price contraction. The valuation gap had become distorted by these changes.
- Accordingly, we have recalibrated and respecified our Valuation Gap chart. The companies used in the large-cap index now include Cresco (CL: CSE), Curaleaf (CURA: CSE), Green Thumb (GTII: CSE), TerrAscend (TSND: TSX), Trulieve (TRUL: CSE), and Verano (VRNO: CSE). The small company index now includes Ascend (AAWH: OTCQX), AYR (AYR.A: CSE), Columbia Care (CCHW: CSE), 4Front (FFNT: CSE), Jushi (JUSHF: OTCQX), and Schwazze (SHWX: OTCQX).
- Although the absolute value of the gap as reconstituted is much smaller, the relative shape of the curve and the direction of recent changes remains unchanged. The Valuation gap has been increasing since the end of April. We now measure aggregate EV/ NTM EBITDA of 6.55x for the large-cap group and 5.69x for the smaller-cap group, producing a valuation gap of .86, down from a recent peak of over 2.0. We have noted previously that the gap tends to narrow in down markets as the large-cap stocks trade with greater liquidity.
- This measure has been a significant driver of M&A activity since a larger gap creates an opportunity for more accretive transactions. The gap tends to increase in improving markets while declining in retreating markets to the greater trading liquidity of the larger companies. We believe the current gap is still understated by the massive illiquidity of cannabis stocks which may not be accurate indicators of the prices at which the entire companies would trade.
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