Diversified automotive company AMA Group Ltd (ASX: AMA) has requested that its shares be placed in a trading halt this morning pending the announcement of a "significant capital raising".
"The Company requests that the trading halt end on the earlier of the commencement of normal trading on 25 June 2015, or when the anticipated announcement referred to above is released to the market."
AMA Group has made a name for itself in the automotive industry for its well priced and conservative acquisitions which so far have it operating in four business lines, spanning from the manufacturing of bullbars; manual and automatic transmissions; automotive cables and accessories; as well as panel beating.
Most recently, AMA entered into a contractual agreement with Woods Accident Repair Centres, making it the sole provider of services for six months and giving it the option to acquire the business at the end of the period.
Although the company is yet to release any specific updates on today's capital raising, The Australian is reporting that Wilson HTM and Cannacord Genuity have launched a $40 million placement for the company of which the proceeds will be used to strengthen the balance sheet and finance potential acquisitions.
Notably, AMA Group had just over $0.5 million of cash on hand as at 31 December 2014 (down from nearly $2.1 million as at 31 June 2014) and total borrowings of just over $8 million (up from roughly $20,000 as at 30 June 2014).
The Australian reports that 66.6 million shares will be issued at 60 cents per share, which represents a 6.3% discount to Monday's closing price of 64 cents. Acquisitions are an important part of AMA Group's growth strategy, so it is necessary for it to have access to cash when acquisition opportunities arise.
In saying that however, a share purchase plan or renounceable rights issue would have been a far more favourable way for it to raise the capital than a placement. Placements are often seen as a quicker alternative and have thus been employed by other companies such as Cash Converters International Ltd (ASX: CCV) in the recent past.
However, these placements can have a major dilution effect on smaller shareholders who are not given the same opportunity to participate at a discounted price. Given that AMA Group has a market capitalisation of just $214 million, the dilution effect of a $40 million capital raising will be quite significant.
