Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Karen Short from FBR; please go ahead.
Megan O’Hara - FBR
This is Megan O’Hara on for Karen. First, we have some questions on the acquisition, looking at the $85 million purchase price. How should we think about the multiple pay given you already distribute the VG’s, because if we look at the multiple base totally on the retail EBITDA, it doesn’t look cheap, but is there are contribution from the distribution segment included as well.
Dennis Eidson
Yes, Megan I think that’s an important point you made. When we work with our customer base and when you use what I would call historic multiples or industry multiples that determine the valuation, you really have to look at both pieces of a customer of our profitable. For one is the obvious EBITDA as Karen work through her analysis and you work through her analysis of that operation, but then there is also fairly significant component that resides in our warehouse operation because we sell products to them today.
If this process would be conducted externally any other potential buyers would be required by the customer’s representative to pay them for that incremental value as well and so a $2 million to $3 million incremental amount of earnings that would be added to however you determined to your EBITDA to really look at a multiple.
Megan O’Hara - FBR
Also can you provide some guidance regarding any incremental CapEx requirements going forward following the acquisition?
Dave Staples
For the VG’s operation, there will always be a maintenance level of capital for any retail store, but this has been in a chain that has believed very strongly in investing in their operation. I think as Dennis alluded to earlier; they put over $30 million in capital under this operation over the past five years. So, there will be some maintenance capital, but very minimal and there is probably a couple of stores we would like to do a remodel with, but other than that, boy this is a wonderful chain that has been very well maintained by its current operates.
Dennis Edison
It’s a great fleet of stores Megan and it is very much unlike the condition of the Felpausch and the D&W acquisitions that required significant capital.
Megan O’Hara - FBR
Okay and do you anticipate additional opportunity to increase distribution penetration as a result of the acquisition?
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