What: Shoe retailer RCG Corporation Limited (ASX: RCG) which operates The Athlete's Foot retail brand along with holding distribution licenses for a range of leading footwear brands has announced the $105 million acquisition of Hype DC.
So What: The agreement will see RCG acquire Hype DC – which operates 60 stores across Australia -for a multiple of six times normalised FY2016 earnings before interest, tax, depreciation and amortisation (EBITDA).
Hype DC had total group sales of approximately $120 million in financial year (FY) 2016.
In commenting on the strategic rationale for the acquisition, management highlighted the following six reasons:
- Earnings accretion
- Portfolio diversification
- Opportunities of scale
- Enhanced vertical strategy
- New retail formats
- Complementary management skills
Now What: RCG has provided guidance that it expects EBITDA for FY 2016 of around $60 million, which is at the top-end of its guidance range. Importantly, RCG has also stated that it is targeting an underlying EBITDA figure of $90 million for FY 2017.
With the share price surging around 17% higher this morning, investors are obviously positive about the Hype DC acquisition. It's a reminder that niche retail operators such as RCG, Premier Investments Limited (ASX: PMV) and Vita Group Limited (ASX: VTG) can achieve strong growth during a store roll out stage, brand extensions and via bolt-on acquisitions.
