April 23, 2014 5:45 pm

Big e-cigarette groups snap up smaller rivals

©Getty

VIP Electronic Cigarette became the latest British e-cigarette company to be bought out by a larger rival as the rapidly growing sector consolidates in an attempt to face off competition from “big tobacco”.

The Manchester-based group was bought by US e-cigarette manufacturer Victory Electronic Cigarettes in a deal worth £30m.

More

On this story

On this topic

IN Tobacco

E-cigarettes have become big business in recent years, with the category accounting for sales of about $3bn globally, according to analysts at Wells Fargo, the investment bank.

Until recently, the sector was dominated by small players that sold e-cigarettes generally manufactured in China.

But a glut of M&A has led to smaller companies being bought by either larger “vaping” groups or big tobacco companies. Fellow Manchester-based business CN Creative was bought out by British American Tobacco in 2012 in a £40m deal.

Last year, Lorillard, the third-largest tobacco company in the US, bought out British e-cigarette maker Skycig in a deal worth up to £60m.

Imperial Tobacco, the world’s fourth-largest tobacco company by market share, bought Dragonite – which claims to have invented the modern e-cigarette – in late 2013 in a deal worth $75m. Imperial Tobacco’s e-cigarette arm launched legal proceedings against nine of its US rivals this year.

The size of large tobacco groups, such as Marlboro-maker Philip Morris International, means that they can enter the market at nearly any point without denting their bottom line. Last year BAT paid a dividend of £2.7bn to shareholders – a figure larger than the global total of e-cigarette sales last year.

VIP was founded by Miguel Corral and David Levin in 2009 and has grown rapidly, posting £20m of revenues between 2012 and 2013 – a jump of 170 per cent.

Commenting on the deal, which involved a mixture of cash and shares, Mr Corral said: “We chose Victory because they have the people, the resources and infrastructure that, when combined with our team, will enable us to accomplish our vision – now on a global basis, and now much faster.”

With a market capitalisation of $670m, Victory is the largest independent e-cigarette manufacturer in the world.

The e-cigarette group achieved notoriety late last year after one of its adverts was censured by the Advertising Standards Agency for “overly sexual” content. In total, the ASA received more than 1,000 complaints, making it the sixth most complained about advert in the UK.

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in