Aphria Set to Flex its Muscle Following Nuuvera Acquisition

Aphria Inc. (TSX:APH) Monday announced a $826 million cash-and-stock transaction to acquire Nuuvera Inc. (TSXV:NUU)

SmallCapPower | January 30, 2018: Consolidation continues to sweep the Canadian cannabis sector as producers scramble to boost their capacities domestically heading into the recreational legalization in mid-2018, as well as internationally to capture the growing opportunity overseas in select jurisdictions. Less than a week after Aurora Cannabis Inc. (TSX:ACB) announced a friendly billion-dollar acquisition of CanniMed Therapeutics Inc. (TSX:CMED), leading medical cannabis producer Aphria Inc. (TSX:APH) announced Monday that it has inked a definite agreement to acquire Nuuvera Inc. (TSXV:NUU), a global cannabis company with presence across Europe, Africa and the Middle East, in a cash-and-stock deal worth $826 million.

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Under the terms of the agreement, Aphria will acquire all the issued and outstanding common shares of Nuuvera for a total consideration of $8.50 per Nuuvera share (21% premium over Friday’s close price of $7.0), comprising $1.00 in cash plus 0.3546 of an Aphria share for each Nuuvera share held. In connection with the transaction, Aphria will issue up to 34 million shares, representing ~20.8% of the currently issued and outstanding shares of Aphria on a non-fully diluted basis. Expected to close in April 2018, the transaction should be accretive to Aphria on an earnings basis in its first full fiscal year.

As part of the Company’s strategy to expand its business through inorganic means, Aphria continues to enter into deals for production and marketing/distribution expansion within Canada and internationally. Two weeks ago, Aphria agreed to acquire Broken Coast, a cannabis producer for ~$230 million, and a couple of montsh back, it made an equity investment in Hiku Brand Company and struck a distribution partnership with Shoppers Drug Mart. The current mega deal builds on the existing partnership between the two companies, combining Aphria’s low-cost cultivation at scale with Nuuvera’s expertise in cannabis processing and extraction, while capitalizing on Nuuvera’s expansive international footprint.

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Vic Neufeld, CEO of Aphria, said “The combination of Aphria and Nuuvera creates a true global leader in medical cannabis with excellent potential for growth and value creation. This transaction, which builds on a long-standing relationship between the two companies, brings together our top tier ability to grow high-quality cannabis at a low-cost with Nuuvera’s expansive international network, expertise in processing, and access to industry leading technology. I am thrilled to welcome Nuuvera to the Aphria family and I am confident they will play a significant role in our continued success.”

Aphria currently sells cannabis for the medical market at the industry’s lowest all-in costs of $1.60 a gram and has a current annual production capacity of ~10,000 kgs. With significant expansion of its Ontario greenhouse facility expected to complete in July 2018, Aphria will produce about 100,000 kilos of cannabis a year, which positions the Company to capture a significant share of the recreational market to be legalized in Canada. The acquisition of Nuuvera will expand its business internationally in key markets such as Latin America and Germany and should allow it to catch up with other Canadian cannabis producers that have already entered internationally markets. In terms of valuation, Aphria trades at price to TTM sales of 119.8x and price to book of 7.4x.

Disclosure: Neither the author nor his/her family own shares in any of the companies mentioned above.

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