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TheStreet Open House

E-Cigarettes Are Smoking the Competition: Part 2

Currently, Lorillard's Blu has the largest retail presence in over 136,000 retail outlets. NJOY is in over 80,000 retail outlets. Vapor's (VPCO:OTC) products are available in over 60,000 retail outlets; Mistic e-cigarettes are sold in over 40,000 stores. The recent merger between Victory Electronic Cigarettes (ECIG:OTC) and Fin increased their combined retail presence to over 50,000 stores. Logic is in 10,000 retail outlets.

Smaller E-Cigarette Companies

Victory Electronic Cigarettes is the largest pure play e-cigarette company by market cap, at $672 million. Victory has been very aggressive in expanding. In December 2013, Victory acquired Vapestick, one of the leading electronic cigarette companies in Europe, for $70 million in cash and stock. Since then, Victory has been aggressively expanding Vapestick throughout Europe. Victory recently announced a merger with Fin, increasing the company's retail presence significantly, to over 50,000 retail stores nationwide.

Victory has excellent management to support this growth. Brent Willis, chairman and CEO, ran private equity firms. He also was CEO for Cott (COT), the world's largest retailer-brand beverage company, and Global CCO, president, and board member for Anheuser-Busch InBev (BUD) and AmBev (ABEV). From 1996 through 2001, Willis was president in Latin America for Coca-Cola (KO), where he led his division to the No. 2 ranking worldwide of all Coke operating units and led the largest turnaround in company history. He also worked for Kraft Foods (KRFT) managing a number of their brands.

Marc Hardgrove, Victory's co-founder is president of the online division, and has been an entrepreneur with ownership of several companies, particularly Internet commerce. CFO Robert Hartford has worked in financial management and for the past 10 years was CEO, CFO and COO for private and public companies. John Perner, president of the retail division for Victory, was chief customer officer of Chateau Sales, and led efforts to secure distribution with Costco (COST), Target (TGT), Home Depot (HD), Safeway (SWY) and Publix (PUSH:OTC). Perner also worked at Pepsi-Cola (PEP). Michael Clapper, director and president of international operations, was founder of Vapestick.

Vapor Corp. has the largest U.S. retail presence of all publicly listed e-cigarette companies. Their products are in over 60,000 retail outlets. Vapor sells 4 different brands: Smoke 51, Krave, Green Puffer and VaporX.

Vapor recently added depth to its board. Ryan Kavanaugh will join as a board member and strategic advisor. Kavanaugh is the principal at Knight Global Services as well as the founder and CEO of Relativity.

What Is This Opportunity Worth?

As I've mentioned, there have been quite a few mergers and acquisitions recently in this field.

Imperial Tobacco (IMT), Europe's second largest tobacco company and maker of Davidoff cigarettes purchase Dragonite International in September 2013. This was reportedly an IP acquisition. In October 2013, Lorillard increased its e-cigarette offering and geographical presence with its acquisition of European e-cigarette Skycig.

Neither Victory nor Vapestick's previous owners provided revenue figures. With the information available, the average enterprise value-to-sales multiple was 3.2.

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