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Coastal Contacts' pending $430 million sale good news for local e-commerce ventures

Profile of Indochino, BuildDirect, raised in wake of deal for online eyewear firm
Coastal Contacts CEO Roger Hardy's family owns about 20% of the company that Essilor intends to buy for $430 million

Essilor International's $430 million bid to buy Vancouver online eyewear seller Coastal Contacts Inc. (TSX:COA; Nasdaq:COA) is good news for other Vancouver online retailers.

The French optical firm's February 27 all-cash offer of $12.45 per share is a 20% premium on Coastal's previous $10.39 closing price, which was arguably high given that the firm's price-to-earnings ratio was more than 1,300.

"Price-to-earnings is just one measure," Coastal Contacts CEO Roger Hardy told Business in Vancouver. "Many people misinterpret value creation in growth companies."

Coastal's board has unanimously endorsed the transaction, which is expected to close within 90 days and is subject to shareholder and regulatory approval.

Along with family members, Hardy owns 20% ($86 million worth) of the company, which operates in Canada as Clearly Contacts and in Europe as Lensway. Hardy said he'll stay as long as he's needed.

He expects Essilor to move its web development team from Austin, Texas, to Vancouver and to keep Coastal's current executive team in place, including president Gary Collins.

"They approached us," Hardy said. "We just had our heads down helping customers. The offer didn't start at $430 million. It moved back and forth a couple times as they looked at the value of the company and were trying to understand it."

Essilor designs and makes a wide range of contact lenses, but Hardy said its target customer tends to be eye doctors rather than consumers directly.

"The opportunity will be for us to take our great success serving customers direct and think about how this whole eye-care model is going to evolve and really see if there's a way to help eye doctors get a little more competitive with their service offerings," said Hardy, who worked in sales at Loomis Courier Service and at a contact lens manufacturer in the late 1990s before he founded what became Coastal Contacts.

The $430 million purchase is the highest price paid both for a Canadian online retailer and for a Canadian optical company. It also underscores the potential for other Vancouver-based online retailers to be acquisition targets.

Online suit-seller Indochino last year moved into an expanded Vancouver office, where more than 40 employees work. Its annual revenue is in the tens of millions of dollars, and the company has the capital to expand given its deep-pocketed ownership group, which includes Vancouver Whitecaps co-owners Jeff Mallett and Steve Nash.

"BuildDirect is also in a good position on its own," added Hardy, who sits on the board of directors of that online building products retailer.

Then there's online shoe-seller, which launched sales in mid-2012, and already has millions of dollars in annual revenue and a triple-digit-percentage growth rate, owner and founder Sean Clark told BIV.

Clark launched and expanded Coastal's Australian division for several years before he returned to Vancouver in 2011.

He managed to attract startup capital from various Coastal executives who all liked his idea to sell shoes online.

"Eighteen months ago, it was me in a basement suite in Dunbar," Clark said. "Now we have 20 employees, including four in our Toronto office and 16 here. We're continually hiring."