M&A Volume Accelerating Driven by Larger Transactions
The bars in the graph depict the total $ of consideration for US M&A transactions. Viridian Capital Advisors breaks the cannabis industry into 12 subsectors. The dark green bars indicate Cultivation & Retail sector deals. In contrast, the lighter green indicates all other industry sectors (Biotech, Consumption Devices, Infused Products & Extracts, Hemp, Investment, Real Estate, etc.)
The orange line shows the average deal size of transactions closed.
The acceleration of M&A activity in 2021 is dramatic. Total consideration for the first half of 2021 is 26% higher than full-year 2019 and 58% higher than full-year 2020.
One of the drivers has been increasing deal size. Four of the largest ten transactions we have tracked in the Viridian Deal Tracker have closed in 2021. (Note: two acquisitions skewed 2020 averages: by Curaleaf: the $950M Curaleaf/Select deal and the $830M Curaleaf/Grass Roots acquisition.)
An increasing percentage of dollar volume has been allocated towards the Cultivation & Retail sector, driven by the increased # of legalized medical and adult markets. and the consolidation we believe is only beginning. Cultivation accounted for 56% of the consideration in 2019 but over 67% YTD in 2021.
Consolidation is motivated by the continuing valuation gap between large and small companies we have previously discussed. We calculate a median EV/2022 consensus EBITDA multiple of 8.5x for the analyst-covered companies with over $750M of market cap versus a median of 5.7x for those under $750M market cap. Smaller companies have a tremendous cost of capital disadvantage.
More public/public deals like Trulieve / Harvest (CSE: TRUL)(OTCQX: TCNNF) are likely as well as more profitable competitors utilize their superior capital markets access advantageously.