The Appen Ltd (ASX: APX) share price won't be going anywhere today after the company requested a trading halt before the market opened.
Why are its shares in a trading halt?
The global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence requested the trading halt so it could launch a capital raising in order to fund a major acquisition.
According to the release, Appen has signed binding agreements to acquire Leapforce and related entity Raterlabs for a total consideration of US$80 million (A$105.3 million). This represents 5.9x FY 2017 forecast EBITDA, pre-synergies and certain purchase price adjustments.
Leapforce is a California-based company that specialises in search relevance with a highly automated, proprietary end-to-end technology platform.
Management believes that the acquisition adds scale and scope to the company which will enable greater participation in the dynamic and high growth artificial intelligence market.
Furthermore, it believes it establishes Appen as the world's leading provider of search relevance services.
The company will fund the acquisition through the issue of shares to Leapforce worth US$16 million, new debt facilities of approximately A$72.6 million, existing cash reserves of A$5 million, a fully underwritten A$25 million placement, and a A$5 million share purchase plan.
The placement and share purchase plan will be done at $5.80 per share, just three cents less than the current share price.
Which isn't a big surprise considering the acquisition is expected to be significantly accretive to earnings.
Management expects the deal to be at least 35% accretive to underlying earnings per share (pre-synergies, expensed transaction costs and share based payments).
Should you invest?
I believe this has the hallmarks of being a great acquisition for the company that could take it to the next level.
While I do have a few concerns about recent developments in the artificial intelligence industry, Appen could be worth a closer look when its shares return to trade later this week.
In the meantime, investors might want to check out fellow fast-growing tech shares Elsight Ltd (ASX: ELS) and Altium Limited (ASX: ALU). I think both of these companies could be set for a strong 2018.
