Scotts Miracle-Gro Co. (NYSE:SMG) said it agreed to buy hydroponics supplier Sunlight Supply Inc. in a deal valued at US$450mln as the company seeks to build sales to cannabis growers.
Sunlight Supply reported fiscal 2017 sales of US$460mln and earnings before interest, taxes, depreciation and amortization (EBITDA) of US$55mln, Scotts said in a statement on its website.
"Combining Hawthorne's industry-leading product portfolio with Sunlight's unparalleled distribution capabilities and complementary portfolio will benefit consumers and all stakeholders in the hydroponic marketplace," Scotts Chief Executive Officer Jim Hagedorn said in the statement.
Scotts will combine the company with its other hydroponics unit, Hawthorne Gardening, and the two are expected to have $600mln in annual sales and service more than 1,800 hydroponic stores in North America, the company said.
“Strategically, we like the transaction as it fits extremely well with Scotts Miracle-Gro's Hawthorne hydroponics subsidiary," a Raymond James analysts wrote in a note. "As with its core U.S. Consumer business, the new vertically-integrated operating model is likely to bring Hawthorne closer to its retailer customers and improve its visibility, while also yielding cost synergies."
Raymond James rates the shares Market Perform.
Scotts shares fell 3.2% to US$82.23 in midday trading.