Hydrofarm Holdings Continues Acquisition Spree With $58M Purchase Of Innovative Growers Equipment, Reports Q3 2021 Preliminary Unaudited Financials

Cannabis-focused hydroponics equipment manufacturer Hydrofarm Holdings Group, Inc. HYFM has entered into an agreement to acquire Illinois-based Innovative Growers Equipment Inc., a manufacturer of horticulture benches, racking and LED lighting systems.

The Deal Details

Under the terms of the agreement, the Fairless Hills, Pennsylvania-based company, agreed to purchase IGE for roughly $58 million using a combination of cash, its credit facilities and approximately $11.6 million in its common stock.

In addition, IGE will become a wholly-owned indirect subsidiary of Hydrofarm.

The transaction is expected to close in early November 2021.

What It Means For Hydrofarm

The acquisition adds IGE commercial equipment product range to Hydrofarm’s existing lineup of high-performance, proprietary branded products.

Moreover, it’s the fifth and latest in a succession of acquisitions made by Hydrofarm in 2021. Over the past year, Hydrofarm acquired Greenstar Products, Inc. in Canada, Aurora Innovations, Inc. in Oregon, HEAVY 16, House & Garden and Mad Farmer brands in California.

“With their manufacturing capabilities and strong line of customized CEA solutions for commercial growers, including benching and racking systems, made-in-America LED lighting solutions, and other equipment and services, IGE is a solid addition to our growing portfolio and will further solidify our position as the acquirer of choice in the CEA industry,” said Bill Toler, chairman and CEO of Hydrofarm.

What’s Next?

Hydrofarm expects IGE to generate approximately $48 million in net sales in 2021, representing significant growth from the prior year.

The company also expects IGE to contribute approximately an incremental $6 million in net sales and less than $1 million in adjusted EBITDA in fiscal 2021. The transaction represents an acquisition multiple of approximately 7x IGE’s estimated 2021 Adjusted EBITDA, excluding synergies.

Senior Secured Term Loan

To fund the acquisition of IGE, Hydrofarm entered into a new $125 million senior secured term loan facility, which carries interest at a rate of either LIBOR (with a 1.00% floor) plus 5.50%, or an alternate base rate (with a 2.00% floor) plus 4.50% and matures on October 25, 2028.

The company has an option to upsize the facility pursuant to the terms of the term loan agreement.

JPMorgan Chase Bank, N.A. acted as sole lead arranger and bookrunner for the transaction.

Q3 2021 Preliminary Unaudited Financial Results

  • The company estimates that net sales will range between $121 million to $124 million, as compared to $96.7 million for the three months ended for the quarter, representing a year-over-year increase of roughly 27%.
  • Net income is expected to range between $13.3 million and $18.3 million, as compared to net income of $2.7 million for the three months ended September 30, 2020.
  • Adjusted EBITDA is estimated to be between $14.4 million to $16.4 million, as compared to $7.4 million for the same period of the last year - an increase of roughly 108% year-over-year.

Updated Outlook For Fiscal 2021

  • Net sales growth between 37% and 43% or approximately $470 million to $490 million.
  • Adjusted EBITDA of $47 million to $53 million, or approximately 10% to 11% of net sales for the full fiscal year, up from approximately 6% in the prior year.

“We believe a short-term oversupply has put downward pressure on cannabis growing activity predominantly in California and Canada,” Toler said. ”In addition, sales activity in highly-populated states such as New York, New Jersey, Virginia, and Connecticut, which have passed new adult-use legislation within the past year, has not yet gained full momentum.”

Photo: Courtesy of laura s on Unsplash

Posted In: Bill TolerCannabisEarningsM&ANewsSmall CapMarkets

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