Scotts Miracle-Gro Co. agreed to acquire the top U.S. distributor of hydroponics products for $450 million in cash and stock, a transaction that will more than double its sales to cannabis growers.

Chief Executive Officer Jim Hagedorn is making the company’s largest-ever transaction as he continues his three-year transformation of Scotts, the largest maker of lawn and garden products, into a force in the cannabis industry. Nine states and the District of Columbia now allow recreational pot use, and the industry is expected to reach $75 billion in sales by 2030 as more legalize marijuana, according to Cowen & Co.

Scotts agreed to pay $425 million cash and $25 million in shares for closely held Sunlight Supply Inc., the Marysville, Ohio-based company said in a statement Tuesday. Sunlight will merge into Scotts’ Hawthorne Gardening Company unit.

“We are creating a game-changing moment for Scotts Miracle-Gro, for Hawthorne, the hydroponic products industry and the users of our products,” Hagedorn said in the statement. The deal is expected to close by June 1.

Deal Costs

Costs associated with the deal are expected to reduce earnings by 30 cents to 40 cents a share in fiscal 2018, Scotts said. Sales in the three months through March fell about 30 percent at Hawthorne because of regulatory changes in California, and about 5 percent in the U.S. consumer segment, the company said.

Scotts shares were largely unchanged in after-market trading, after closing higher Tuesday at $85.14.

The combined company would serve 1,800 hydroponic retail customers in the U.S. Sunlight has nine distribution facilities across North America.

Related: Scotts Miracle-Gro homing in on ‘big vision’ for hydroponics as state-legal cannabis grows

The deal will boost sales in Scott’s Hawthorne Gardening subsidiary to about $600 million, from $290 million, the company said. Sunlight’s sales last year were about $460 million, with 20 percent coming from distributing Hawthorne’s products. The company generated about $55 million in earnings before interest, taxes, depreciation and amortization.

“The pending acquisition of Sunlight Supply now gives us the green light to aggressively optimize the businesses we’ve acquired and create a more efficient business that better serves the needs of consumers and our customers,” Hagedorn said.

Scotts previously acquired hydroponic brands such as Gavita, Botanicare, Can-Filters, and General Hydroponics.

By fiscal 2019, the transaction should add 60 cents to 80 cents a share to adjusted earnings, including plans to cut costs at Hawthorne by about $35 million. Scotts said it plans to boost Hawthorne profit to about $120 million with margins of 17 percent to 18 percent by the end of fiscal 2020.


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