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 09/30/2022
- Four M&A transactions closed this week with a total disclosed transaction value of $196.5M compared to six transactions for $1.55BM in the prior year.
YTD Activities
Total YTD M&A volume is down 80.7% from 2021, with $4.53B in consideration and 139 deals closed versus $23.54B in transaction value and 263 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 61.7% YTD.
U.S. volume is down 68.3%, with 40.3% fewer transactions.
- The average transaction size of $37.7M is down 47.0% from 2021. Still, 2022’s average is expected to grow considerably as large public/public transactions like Cresco/Columbia Care and Verano/Goodness Growth close in the 4th quarter.
Pending Risk Deal Arb Analysis
- The Cresco/Columbia deal spread widened by 680 bp to 21.8% on 9/30/22. The spread is the widest it has been since the deal was announced. We continue to expect a late 2022 closing, but the current chaos in the cannabis stock market increases the risk of both the primary transaction and the required divestitures. We saw no specific news regarding the deal to account for the massive spread widening.
- The Verano/ Goodness Growth spread narrowed by 490bp to 10.6% as of 9/30/22, returning to the range it occupied since mid-July. We saw no specific news for the significant spread tightening.
Valuation Gap Analysis
- The valuation gap narrowed to 2.65 on 9/30/22 compared to 2.72 last week and below its 3.77 YTD 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, which has averaged around 3.8 points in 2022, 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.
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