Benzinga | Apr 26, 2021 04:01PM EDT

Hydrofarm Enters Into Agreement To Acquire Premium Nutrient Maker HEAVY 16 For Up To $78.1M

Hydrofarm Holdings Group, Inc. ("Hydrofarm") (NASDAQ:HYFM), a leading distributor and manufacturer of hydroponics equipment and supplies, announced it has entered into an agreement to acquire Field 16, LLC, the manufacturer and distributor of HEAVY 16, a line of premium plant nutrients (collectively "HEAVY 16"). The company's first acquisition since its December 2020 initial public offering, the move further enhances Hydrofarm's already robust portfolio of high-performance, innovative and proprietary branded products in the lighting, climate control, nutrients and growing media categories.



"As a leading hydroponics company, a key component of our growth strategy is to bring dynamic brands like HEAVY 16 under the Hydrofarm umbrella and continue to solidify our position as the acquirer of choice in this highly fragmented and fast-growing industry," said Bill Toler, Chairman and Chief Executive Officer of Hydrofarm. "Controlled environment agriculture is in the midst of a revolution and poised to be the most significant new market category to emerge in a generation."

Subject to customary closing conditions, the transaction is expected to be completed in May 2021. Upon completion of the transaction. HEAVY 16 CEO Aaron Berkowitz will join the Hydrofarm senior management team as he continues to lead the HEAVY 16 business. In addition, HEAVY 16 Founder and Chief Agronomist Bryce Patterson will continue to work alongside Mr. Berkowitz as Chief Agronomist, focusing on research and development, customer experience, and integration efforts.

"Since HEAVY 16's inception, our innovation has been driven by listening to local farmers and using the highest-grade ingredients to formulate a potent and streamlined nutrient regimen to help them achieve their goals. As the first line of nutrients to be manufactured under the Hydrofarm umbrella, we now have the opportunity to further accelerate the development and introduction of solutions that empower growers to operate more effectively and sustainably as this transformative industry continues to evolve," said Mr. Berkowitz. "We are thrilled to join the Hydrofarm family of brands as we explore new frontiers in the CEA space together."

Paramount, Calif.-based HEAVY 16 delivers a full line of premium nutrients with nine core products used in all stages of plant growth, helping to increase the yield and quality of crops. Available across the U.S. in more than 300 retail stores, HEAVY 16 products provide a streamlined system for achieving even the most demanding agricultural goals.

The strategic combination of Hydrofarm's leading distribution capabilities and HEAVY 16's branded nutrient manufacturing capabilities will enable the highly respected HEAVY 16 brand to grow more rapidly across the combined company's customer base. The acquisition also fits squarely with Hydrofarm's strategy to acquire branded manufacturers in key CEA product categories, such as plant nutrients. Hydrofarm expects HEAVY 16 to generate approximately $23 million in net sales across the full calendar year 2021, representing significant growth from the prior year. HEAVY 16's profit margin profile will be accretive to Hydrofarm and as a result, the Company expects the acquisition will enhance the Company's adjusted EBITDA margin for the 2021 fiscal year.

Hydrofarm will fund the full transaction consideration of up to $78.1 million using a combination of cash, the Company's existing credit facility and $15.0 million in newly issued HYFM common stock. The referenced transaction consideration includes a potential earn out payment of up to $2.5 million based on achievement of certain performance metrics. The Company expects the transaction to be accretive to earnings in 2021 and beyond. The transaction represents an acquisition value of less than 7x HEAVY 16's estimated 2021 Adjusted EBITDA, excluding synergies but including the net present value of tax benefits resulting from the transaction.