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:
-
- 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
Quick Links
Transaction Activities
Week ended 10/21/2022
- One M&A transaction closed this week with a no disclosed transaction value compared to two transactions for $72.48M in the prior year.
YTD Activities
Total YTD M&A volume is down 80.5% from 2021, with $4.72B in consideration and 146 deals closed versus $23.89B in transaction value and 273 closings in 2021.
- Last year’s total included two of the largest M&A transactions ever done in cannabis, the $4.5B Tilray acquisition of Aphria and the $7.2B Jazz Pharma acquisition of GW Pharma. Without the two megadeals mentioned above, the volume in 2022 would trail 2021 by 61.3% YTD.
- 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.
U.S. volume is down 67.5% YTD, with 40.8% fewer transactions.
- The average transaction size of $34.3M is down 45.1% from 2021. Still, 2022’s average is expected to grow as large public/public transactions like Cresco/Columbia Care close in the 4th quarter.
Pending Risk Deal Arb Analysis
- The Cresco/Columbia deal spread widened by 260 bp to 15.8% on 10/21/22. Doubtlessly, the collapse of the Verano/Goodness Growth deal was an influence in the spread widening. However, we believe this transaction has a broader basis. Cresco’s motivation to purchase Columbia Care is not primarily based on the latter’s NY assets, the value of which is no longer clear.
Valuation Gap Analysis
-
- The valuation gap widened 72bp to 3.62 on 10/21/22, still below its 3.96 LTM 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.
- A gap of over 4 points is conducive to accretive transactions between the largest MSOs and smaller competitors. At the same time, a tighter financing market makes it more challenging for small companies to finance the growth of their business.
- We note that the gap is based on trading prices and not on values where a company could raise significant amounts of capital. The difference is crucial because one of the key drivers we see for accelerating M&A activity is the inability of smaller companies to finance themselves in the current cannabis capital markets
Please login to your account to view data charts.
