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 04/21/2023
- Two M&A transactions closed this week with no disclosed transaction values, compared to two transactions for $300.2M in the prior year.
YTD Activities
- Forty transactions totaling $843.2M have closed YTD, compared to seventy transactions for $2,999.6M last year.
- The 2023 YTD average transaction size of $21M is the lowest in recent years.
Pending Risk Deal Arb Analysis
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- The Cresco/Columbia deal spread narrowed by 250 bp to 66.5% on 4/21/23, still incredibly high given the announced closing timetable. A 66.5% arb spread screams skepticism that the agreement will survive as presently structured because that return over a three-month horizon seems too good to be true. The constrained capital markets make required divestitures in Ohio and Florida more challenging. The spread may also relate to the relative credit qualities of the two companies. Columbia Care “needs” the deal to close as its long-term liquidity profile is challenging as a standalone, whereas Cresco is somewhat better positioned.
Valuation Gap Analysis
- The valuation gap widened to 2.38 on 4/21/23, still well below its 52-week average of 2.97. 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. We believe the current gap is 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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