RCG Corporation Limited (ASX: RCG) the operator of The Athlete's Foot chain in Australia, has announced the proposed acquisition of footwear distributor and marketer Accent Group for $180 – $200 million.
Being that RCG Corporation is only a $193 million company itself, this is a big acquisition that could strongly affect both revenue and earnings. The company projects the transaction to be materially accretive for earnings before interest, tax, depreciation and amortisation (EBITDA) and earnings per share (EPS) in financial year 2016.
Accent Group's business size and revenue
Accent Group operates 97 stores in Australia and New Zealand, including stores mono-branded with well-known shoe names such as Skechers, Vans and Timberland. In addition, it has its own successful multi-branded sneaker business called Platypus Shoes.
In the RCG Corporation release, Accent Group's retail sales for the 12 months ended December 2014 were said to be about $120 million. $62 million in wholesale shoe sales were also generated. In comparison, RCG Corporation had revenue of $81.2 million in financial year 2014.
How much will RCG Corporation expand?
After the acquisition, RCG Corporation will become a regional market leader with over 270 stores and exclusive distribution rights for 13 brands. Currently, the company sells and distributes brands such as Merrell, Saucony, Cushe, CAT (Caterpillar) and Sperry Top-Sider.
The acquisition will be funded by share placements to institutional/sophisticated investors and AGL shareholders separately, as well as an unsecured vendor note and bank debt.
Following the completion of the transaction, RCG shareholders will have the opportunity to subscribe for shares at no more than 70 cents under a share purchase plan. RCG stock closed yesterday at $0.72 a share.
A growing business and high-yield stock
RCG Corporation has been growing steadily over the past five years, more than doubling annual revenue and raising earnings an average 14% annually since 2010. Some of its competitors in fashion, sports and outdoor footwear are Super Retail Group Ltd (ASX: SUL), which operates the Rebel Sports and Amart Sports stores, as well as outdoor specialty retailer Kathmandu Holdings Ltd (ASX: KMD).
The stock yields a whopping 6.4%, which beats low bank term deposit rates hands down. I think RCG Corporation could be a solid grower in your portfolio.
