Under the terms of the definitive stock purchase agreement, Dollarama noted that the estimated purchase price was in the range of $85m to $95m, based on financial projections provided by the management of Dollarcity.
The company will make a payment of $40m upon closing the transaction, which is expected to take place next month.
Dollarama president and CEO Neil Rossy said: “With this transaction, which is expected to be immediately accretive to our earnings, Dollarama is establishing a compelling second growth platform, in complement to our Canadian growth strategy.
“After six years of due diligence review and on-the-ground experience in Latin America, we believe that now is the right time to exercise our option to acquire this interest, and that Dollarcity is the right vehicle to capture the growth potential we see in our chosen markets.”
Dollarcity operated a total of 180 stores as of 31 March this year, with 44 in El Salvador, 54 in Guatemala and 82 in Colombia. This year, the retailer’s growth target is 40 to 50 net new stores. During the first quarter of this year, the retailer had already opened 11 net new stores.
By 2019, Dollarcity aims to reach a target of up to 600 stores within its three existing countries of operation, with the majority of its store growth focused in Colombia.
The deal comes after Dollarama signed a commercial agreement to share its business expertise and provide sourcing services to Dollarcity, through a wholly-owned subsidiary, Dollarama International in February 2013.
As part of this agreement, Dollarama had an option to acquire a 50.1% interest in Dollarcity.
The agreement, which covers Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Peru, was amended in 2016 to postpone the opening of the call option window from February this year to February next year.
The companies have now mutually agreed to accelerate the call option, while maintaining for the purposes of purchase price calculation.