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Vita Group Limited shares sink on acquisition plans

shopping retail

In morning trade the Vita Group Limited (ASX: VTG) share price has sunk into the red and is down 5% to $1.47.

This latest drop brings its year-to-date decline to over 55%.

Why are its shares down today?

This morning Vita announced a conditional agreement to acquire Clear Complexions for $9.5 million, comprising $8.5 million in cash and $1 million in Vita shares.

This acquisition will mark Vita’s entry into the non-invasive medical medical aesthetics (NIMA) market which is estimated to be worth $1 billion per annum in Australia.

According to the release, the category offers double-digit annual growth and encompasses non-surgical cosmetic treatments such as anti-wrinkle injectables, chemical facial peels, dermal fillers, laser and light-based therapies, body sculpting, and tattoo removal.

Quite a change of direction for the Telstra Corporation Ltd (ASX: TLS) retail store operator.

And judging by the share price decline today, the market isn’t convinced by the move.

The acquired business is anticipated to deliver annual revenue of around $10 million over the next 12 months, with EBITDA expected to be in the region of $1 million.

Should you invest?

While I can understand why Vita is looking to diversify its business following the changes to its remuneration and store count by Telstra, this isn’t necessarily what I was expecting.

Although it could prove to be a successful move by the company, I’ll be sitting this one out and waiting to see how the business develops.

In the meantime I think there are far better and less risky investment options in the retail space such as Premier Investments Limited (ASX: PMV) and Super Retail Group Ltd (ASX: SUL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Premier Investments Limited, Super Retail Group Limited, and Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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