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 02/03/2023
- Three M&A transactions closed this week, for $13.84M, compared to nine transactions for $617.48M in the prior year.
YTD Activities
- Seventeen transactions totaling $144.9M have closed YTD, compared to twenty-three transactions for $1124.0M last year.
- The 2023 average transaction size of $8.5M is the lowest in recent years, and unlike most of the previous years (except 2020), the U.S. has accounted for less than 10% of the total.
- We believe the likelihood of relatively sizeable public/public M&A transactions has increased significantly based on the low trading multiples of tier 2 and 3 MSOs and SSOs, particularly those perceived to be cash flow pressured.
Pending Risk Deal Arb Analysis
- The Cresco/Columbia deal spread narrowed by 1130bp to 42.3% on 2/3/23 but continues to signal considerable market doubt about closing this transaction despite both companies continuing to say that they are committed to the deal. An unannualized rate of return of 42% for a less than six-month investment seems too good to be true. Will this transaction fall apart or be recut somehow? What are we missing here?
Valuation Gap Analysis
- The valuation gap widened slightly to 1.77 on 2/3/23 but remained close to the lowest measure since we began tracking this measure and 156 bps lower than its 52-week average. The valuation gap is the difference between the EV/NTM EBITDA multiple for the largest MSOs and the multiple for the less than $300M market cap group, which are their primary targets.
- 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.
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