Hydrofarm Holdings Group, Inc. (HYFM) stock prices were down by a concerning 4.54% as of the market closing on June 17th, 2021, bringing the price per share down to USD$54.43 at the end of the trading day. After-hours trading saw the stock rally by 4.34%, bringing it back up to USD$56.79.
Acquisition of Aurora
The company announced on June 17th, 2021 that it had entered into an agreement that would oversee that acquisition of Aurora. The deal will result in the acquisition of Aurora Innovations, Aurora International, and Gotham Properties, the latter of which is a manufacturer and supplier of organic hydroponic products, based out of Eugene, Oregon.
Expansion of Offerings
The acquired company’s Roots Organics and Soul soil and grow media and nutrients brands will be added to HYFM’s product portfolio. The catalogue of offerings will also be expanded to include Aurora’s Procision perlite and peat moss professional mixes as high-performance, proprietary branded products.
Funding the Acquisition
The closing transaction will be funded for a total consideration of USD$161 million, which will be a combination of both cash and company stock. The newly issued HYFM common stock will amount to approximately USD$26 million. The transaction considered does not include a potential earn out a payment that could amount to USD$21 million, depending on the achievement of certain performance metrics. As per the agreement, Aurora will become a wholly-owned indirect subsidiary of HYFM. The closing of the transaction is expected for the end of July 2021, following the satisfaction of customary closing conditions
Scope of Merger
The strategic collaboration serves to make HYFM’s stated goals of acquiring high-growth businesses more accessible. Targeted companies for acquisition are selected based on attractive margin profiles and in-house manufacturing and/or ownership of the branded products being sold. HYFM forecasts Aurora to generate almost UD$60 million in net sales for the full calendar year 2021. In conjunction with the estimated earnout payment, the full transaction consideration represents an acquisition value that come out to almost nine times the numbers reported for Aurora’s Adjusted EBITDA for 2021. This excludes synergies but is inclusive of the net present value of estimated tax benefits resulting from the transaction.
Future Outlook for HYFM
Armed with the latest in a string of potentially profitable acquisitions, HYFM is poised to continue its trajectory of success. Current and potential investors are hopeful that management will leverage the resources at their disposal to facilitate significant and sustained increases in shareholder value.