Why the City Chic (ASX:CCX) share price is rocketing 15% higher

The City Chic Collective Ltd (ASX:CCX) share price is charging higher today after announcing a major acquisition…

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In morning trade the City Chic Collective Ltd (ASX: CCX) share price is rocketing higher.

At the time of writing, the fashion retailer’s shares are up 15% to $3.65.

Why is the City Chic share price rocketing higher?

Investors have been buying the company’s shares this morning after it announced a binding asset purchase agreement to acquire the Evans brand and its eCommerce and wholesale businesses for 23.1 million pounds (A$41 million) in cash.

According to the release, Evans is a UK-based retailer of women’s plus-size clothing with a longstanding customer base and strong market position. The Evans assets will be acquired from Evans Retail Limited and certain other entities within the Arcadia group, which entered into administration on 30 November 2020.

Management expects the acquisition to complete on 23 December 2020, subject only to payment of the cash consideration.

Why Evans?

City Chic’s Chief Executive Officer and Managing Director, Phil Ryan, revealed that he has been following Evans closely for over a decade.

During this time he has seen the brand evolve from a dominant high street retailer into a more digitally focused business. The company also knows the brand very well, as it has had a successful partnership with Evans for many years.

Overall, Mr Ryan believes Evans ticks a lot of boxes in regard to the type of acquisition he is looking for.

He explained: “The acquisition meets our strategic objective of growing through global customer acquisition, digitally, and in the $50 billion curvy apparel market. In addition to providing a launching pad into a new market, we are confident we can deploy our lean, customer-centric operating model to drive revenue growth and cost efficiencies in the existing business. We have a great opportunity ahead of us to develop the third major region for the City Chic Collective.”

The acquisition will be funded from City Chic’s existing cash balance. The company’s pre-acquisition cash balance as at 30 November 2020 was A$121 million. Its A$40 million debt facility will remain undrawn.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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