The Cresco Labs-Columbia Care Deal: 3 make or break considerations
“The amateurs discuss tactics: the professionals discuss logistics.” Napoleon
Napoleon’s famous dictum is a good analogy to gage whether this deal will prove to be transformative. Success will ultimately come down to whether Cresco can operationally realize the deal’s strategic potential.
On paper this transaction looks like a win-win between two large, well-run companies. Yet, accretive value is not decided on paper. Its unlocked in the operational, management and cultural trenches where the synergies and savings are realized. Yet, all too often these last 10 yards is where most deals run asunder.
The harsh reality is that in 80% of the cases M&A fails to build shareholder value. Put another way, the typical consummated transaction (often led by skilled corporate deal makers in well-established industries) begins behind the eight ball.
The success or failure of this deal will hinge on some three untested management assumptions:
1. Can Columbia Care be integrated smoothly and in due course? Its tough to say but I do not see any MSO or LP with a proven and repeatable post merger/acquisition integration capability. See Hexo, Aurora, Canopy etc. as examples on how difficult this task truly is.
2. Can the synergies, ‘de-levering’ and cost savings be captured quickly enough? Its difficult to comment without seeing the value capture (ie integration, rationalization, licensing) plan but its also clear that this is always a tall mountain to climb. And, when your combined entity has many corporate strategies and businesses (retail, wholesale, brands and cultivation) and are in the thick of license land grabs in new markets, its no easy task to find the time and resources to rationalize costs and drive synergies – whatever those are.
3. Can the deal overcome regulatory hurdles? Hard to say right now but part of this transaction’s success will also hinge on ‘if’ and ‘when’ meaningful US federal reform comes to pass. If State or Federal regulations create insurmountable hurdles or tarries too long, major asset divestment will be in order, hurting overall value creation.
And lets not forget that even strong M&A rationales come with the usual deal gripes. For this transaction, some are already arguing that the acquisition price was too high (in a time of depressed industry valuations) and that Cresco shareholders got too diluted.
As the cliché goes, only time (and operational elan) will tell.
#crescolabs #columbiacare #M&A #shareholdervalue #synergies #capitalmarkets