M&A DEALS TOP $5 TRILLION FOR FIRST TIME EVER IN 2021, NO SIGNS OF SLOWING IN 2022
Merger and acquisition activity was completed at an almost frenetic pace in 2021, hitting the highest number of deals in more than three decades while crushing the all-time record for dollar amount. After some slowdowns in 2019 and 2020 owing to the coronavirus pandemic, buyers took advantage of historically low interest rates while sellers benefited from a booming stock market pushing valuations higher. Global deal flow topped $5 trillion for the first time ever and, in fact, encroached on $6 trillion as companies joined forces in preparation for future growth.
Companies from every corner of the world across the full spectrum of industries made moves to strengthen their fundamentals and silence concerns over rising inflation and hiccups in supply chains by penetrating new markets. That's the route consumer packaged goods company Flora Growth Corp. took, further fueling momentum that has seen major deals completed by AMC Theatres, Advanced Micro Devices, Roblox and Zynga.
Merger and acquisition activity in 2021 at $5.9 trillion crushed the old record set in 2015 at $4.22 trillion.
Flora Growth Corp. has been active in the space, closing 2021 and opening 2022 with acquisitions of companies that combined for ~$35 million in revenues and ~$7 million EBITDA.
The most recent acquisition gives Flora Growth a sizeable footprint in the U.S., including 300,000 customers, 14,000-plus distribution points and a GMP manufacturing facility.
Flora Growth recently raised $34.5 million in an oversubscribed offering to continue its growth trajectory, also adding new key hires to its C-suite and advisory board.
2021: The Year of the Megadeal
After setting the bar at roughly $4.22 trillion in M&A activity in 2015, funds and corporations tapped the brakes on big-dollar buys in subsequent years, apparently allowing the demand spring to coil tighter into 2021, when the number of deals topped 63,000 and the transactional volume soared to $5.9 trillion, according to market researchers at Refinitiv. Geographically, the U.S. experienced the biggest jump in activity, as deal flow expanded 82% year-over-year to about $2.5 trillion.
In PriceWaterhouseCoopers' Deals 2022 Outlook, the professional services firm took note of the willingness to spend as measured by a record number of deals in 2021 priced at $5+ billion. The rise wasn't because smaller deals were ignored. An average year includes 400–500 transactions in the range of $500 million to $5 billion. There were more than 800 such deals in 2021.
With most experts expecting the Federal Reserve to remain as accommodating as possible, speculation is that companies will remain aggressive in buying growth this year.
Coming Out Swinging
Flora Growth Corp. specializes in carefully curating and manufacturing products that span a diverse group of markets, demographics and revenue streams. The model is multidimensional, involving several verticals (i.e., commercial, brands, research and development) and leveraging owned infrastructure to develop unique brands that are differentiated in prominent retailers such as Walmart and Macy's.
Across its portfolio of brands, including but not limited to Tonino, Lamborghini, Vessel Brand Inc., Stardog Loungewear, Mambe and Mind Naturals skincare, Flora Growth serves more than half a million customers with products that prioritize natural ingredients and value-chain sustainability. The uniqueness and quality of the Flora portfolio has made a mark in the sector and is only gaining momentum.
The company ended 2021 on a roll and isn't showing any signs of letting off the accelerator in 2022. Management is active in completing accretive acquisitions, adding key staffers and strengthening its fundamentals at it expands into the biggest market in the world. The latest moves include completing an initial public offering to list on the NASDAQ exchange, closing the purchase of Vessel Brand, forging a Latin American joint venture, and closing an over-subscribed capital raise that beefed up the cash position of a clean balance sheet with negligible debt.
Flora Growth's recent strategic maneuvers continue the momentum from 2021, when the company closed the acquisition of Vessel Brand Inc., a direct-to-consumer (DTC) business that experienced 90% year-over-year revenue growth, in a cash-and-stock deal. Flora Growth also forged a new joint venture late in 2021 to distribute the award-winning KaLaya brand through Latin American markets and closed an oversubscribed public offering that added $34.5 million to the coffers to keep on executing. The company looks to have a pristine balance sheet with minimal debt complemented by a large cash balance.
Planting Flag in U.S. Market
Earlier this week, Flora Growth arrived on the U.S. scene in a big way by closing its most recent acquisition to immediately provide a jolt to combined corporate revenue. Incorporated less than five years ago, FLGC's newly acquired company quickly climbed the ranks as a category-leading wellness CPG brand with a portfolio of more than 300 branded products, a full-scale manufacturing facility in Ft. Lauderdale, Florida, and a reputation for powerful natural products sourced domestically.
Shipping products from its own distribution center, the company established an omni-channel distribution network that places its goods in 14,000-plus retail stores that has resulted in more than 300,000 loyal customers. Supported by extensive sales channels and popular products, the company recorded $28 million in audited revenue in 2020 and $7 million in EBITDA (earnings before interest, taxes, depreciation, and amortization).
As part of the merger, Flora Growth added to its team of venerable experts, bringing onboard Hussein Rakine, who was named to Forbes' 2022 list of 30 Under 30 list for retail and ecommerce. In addition to Rakine, Flora Growth has named a chief strategy officer, chief marketing officer, SVP of global operations and formed an advisory board as it positions for continued expansion.
Another $6.6 Million in Revenue
The Florida acquisition followed Flora Growth's acquisition of Vessel Brand Inc. in November. Both deals were completed via cash and stock, a savvy strategy that keeps skin in the game for the acquired entities. Vessel has been executing on a go-to-market strategy for direct-to-consumer sales in both the United States and internationally. To that point, trailing 12-month revenue leading into the acquisition was reported at $6.6 million, up 90% versus the comparable 12 months prior.
Flora Growth management hasn't yet provided updated guidance on 2022 revenue based on the new announcement. However, late last year, Flora Growth released revenue estimates for this year of between $35 million and $45 million, which should pique investors' interest about expectations going forward once synergies and the full impact of the new assets and team members are realized. This should have investors eagerly awaiting the release of Q4 and 2021 full-year results along with management discussion on the merger's effect on the top and bottom lines this year, which certainly could be the next market catalyst.
Want Fast Growth? M&A Is the Answer
The world has certainly dealt with plenty of obstacles over the last few years, headlined by the COVID-19 pandemic, social unrest, cyberattacks and now the invasion of Ukraine by Russia. These factors have shone a bright light on the importance of diversification and self-sufficiency in services and sourcing products. Companies are addressing these needs in a variety of ways, including M&A activity, reshoring and nearshoring to ensure delivery and stability to meet consumer's needs.
AMC Theatres (NYSE: AMC), the largest theatrical exhibitor in the world, has been active since raising $230 million last year to consolidate the industry and re-open closed movie theaters. With its acquisitions completed in December, AMC acquired four former Pacific & Arclight locations in 2021. The trend continues in 2022, with AMC making more acquisitions and striking lease agreements to keep a foothold on its market dominance. The company now operates approximately 950 theaters and 10,500 screens across the globe.
Advanced Micro Devices (NASDAQ: AMD) in mid-February closed its acquisition of Xilinx for $49 billion, completing the largest semiconductor deal in history. AMD estimates that the acquisition increases its total addressable market to $135 billion, while strengthening its financial model through diversified revenue streams across multiple, high-margin businesses. Management sees the merger as accretive to non-GAAP margins, non-GAAP earnings per share, and free cash flow in the first year.
Roblox (NYSE: RBLX) made a significant move in the second half of 2021 with the acquisition of Discord competitor Guilded Inc., a privately held company focused on building a platform to connect gaming communities, for an undisclosed amount. Since launching in 2017, the Guilded team built a powerful platform to connect gaming communities, including tools and features such as tiered voice chat, video chat, integrated calendars, scheduling tools and more. In March 2021, the company launched its bot API to simplify bot development allowing users with little or no programming experience to easily create bots.
Zynga (NASDAQ: ZNGA), the Farmville creator, closed on the acquisition of NanoTribe, an independent mobile game studio based in Germany. The Berlin-based studio is the first studio outside of Turkey managed by Rollic, a subsidiary of Zynga, adding to Rollic's growing family of hypercasual game developers and marking the expansion of its base into new markets. NanoTribe has previously published games with Rollic, including Cashier 3D, which has surpassed more than 33 million downloads worldwide, and Arrow Fest, a 2021 breakout hit.
Last year was a banner year for people that enjoy mergers and acquisitions. No one should feel that they missed out of too much, though, because it looks like the frenzy could continue throughout 2022.
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