Another bidder for ICC Labs is unlikely to emerge, GMP says

Shareholders of ICC Labs (Quote, Chart TSXV:ICC) should be content with the offer from Aurora Cannabis, GMP Securities analyst Martin Landry says.

On Monday, Aurora and ICC announced a friendly deal that would see the former acquire the latter for $1.95 per share.

“ICC was the first company in the world to receive a cannabis production licence for adult consumer use, making Uruguay the first country globally in the modern era to legalize cannabis, ICC Labs CEO Alejandro Antalich said. “This has provided us with significant early-mover advantage. Combining with Aurora, its industry-leading plant, medical and product development science teams, broad international reach, and strong brands, positions us well to extend our leadership in the South American cannabis markets and the emerging global cannabis industry. The complementary nature of the two organizations and the shared philosophies made this an ideal match for us to realize our ambitious growth plans. This is a value-maximizing transaction that provides our shareholders with a significant premium and an exciting opportunity to participate in the upside of Aurora, one of the largest and fastest-growing cannabis companies in the world. With multiple initiatives, such as our expanding international operations and our state-of-the-art science lab near to completion, it is time for ICC to move to the next level, and we believe that Aurora is an ideal partner to achieve this with.”

Landry says this valuation appears fair and says he thinks the likelihood of another bidder is low.

“Aurora is acquiring ICC for a total consideration of ~C$327m,” the analyst notes. “This represents an EV to forward sales multiple of ~4.3x based on our 2019 sales estimates, which is within the 3-5x forward sales range at which precedent transactions in the sector have occurred. In addition, the $327m valuation is higher than similar LATAM-based companies such as Pharmacielo and Khiron who have an EV of C$270m and C$65m, respectively. We see a limited likelihood that other suitors will emerge given that most of the large Canadian cannabis companies already have a platform in the region. For the remaining Canadian cannabis companies without a presence in LATAM, ICC would represent a large acquisition potentially requiring a shareholder vote and adding uncertainty
for ICC shareholders. As for US-based cannabis companies, given the rapid changes occurring in the US, we expect they will focus on the US market.”

In a research update to clients today, Landry changed his rating on ICC Labs from “Speculative Buy” to “Tender”, while lowering his one-year price target on the stock from $2.75 to $1.95.

Landry thinks ICC will generate EBITDA of negative $7.0-million on revenue of $900,000 in fiscal 2018. He expects those numbers will improve to EBITDA of positive $16.0-million on a topline of $58.9-million the following year.