The Audinate Ltd (ASX: AD8) share price is locked in a trading halt this morning after the audio technology business flagged it intends to raise capital this morning, but failed to provide any other details.
According to The Australian Financial Review’s ‘street talk’ column Audinate wants to raise $20 million at $7 a share to give subscribers a 5.9% discount to the last exchange traded price of $7.44 a share.
As at March 31 2019 the company had $12 million cash on hand and a positive operating cash flow of $2.16 million for the nine months ending March 31 2019.
We can see then why the company may want to raise cash if it intends to invest more for growth and the reasoning is amplified when you consider the shares have more than doubled in value from $3.50 in November 2018 to $7.44 yesterday.
In other words Audinate can raise the $20 million today by issuing half the amount of new shares it would have needed to just 6 months ago.
Given the volatility of share market sentiment around high growth tech businesses such as this it makes sense for the company and its capital markets advisers to strike while the iron is white hot.
The downside for shareholders is that more shares on issue mean any future profits will be spread out thinner and there’s no news as yet on whether retail shareholders will have the option to participate in the raising on what will likely be a non-renounceable basis.
Others tech small cap darlings to have taken advantage of soaring share prices recently to raise capital recently include Bravura Solutions Ltd (ASX: BVS) which raised a significant $165 million, and medical imaging business Volpara Health Technologies Ltd (ASX: VHT) that is in the process of raising $55 million.
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Tom Richardson has no position in any of the stocks mentioned.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO and VOLPARA FPO NZ. The Motley Fool Australia has recommended Bravura Solutions Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.