According to Elvis Presley, "wise men say, only fools rush in." The market for mergers and acquisitions (M&A) in the US cannabis sector can once again be described as “the wild, wild, west.” Publicly-traded MSO’s find themselves awash in capital, locked in an “arms race” with one another to rapidly generate scale, enter new growth geographies, and, ultimately, create sustainable consumer brands. As a result, almost all licensed operators with operational assets are being approached, aggressively at times, by multiple prospective buyers with offers light on cash and long on promises of future treasure.
More often than not, operators succumb to the pressure – sold on the upside and scared to lose an exit opportunity – only to painfully realize after the fact that better alternatives were available in the market.
Licensed operators need to fully understand the current state of play or risk under-capitalizing the value they have worked so hard to create. Do not let the MSOs fool you. They will pay top dollar for assets that fit their strategic objectives. They all have massive cash war chests and can increase the up-front cash component of deals. Moreover, MSOs benefit from lofty public market valuations, allowing them to get very aggressive on the price they pay while still doing “accretive transactions,” which indeed is their primary motivation.
Of course, no matter how perfect the fit, no rational buyer offers a target “top dollar” outside of a competitive process. Suppose you sell your company to the first group that approaches you without hiring professional advisors and/or reaching out to other prospective acquirers. In that case, you are undoubtedly leaving money on the table. And why? Because you think hiring an investment banker will scare off the buyer? It will not, unless the buyer was not real to begin with. Is it because you think it will add time and expense to your sale transaction? In fact, it will save time and expense. Is it because you think the investment banker will not understand your business and the industry? That may well be true unless, of course, you hire a bank focused exclusively on the cannabis industry.
Sharp was born from its affiliate Livingstone Partners, an international boutique investment banking firm specializing in selling private companies in privately-managed sales processes. Across multiple industries, we have represented hundreds of clients in private sale transactions since our formation in 2007, and we have now trained our sights on the cannabis sector. Our services are invaluable to licensed operators considering a sale or merger and/or responding to unsolicited in-bound buyer interest. But don’t just take our word for it, consider some of our success stories: