Why is the Eroad (ASX:ERD) share price halted today?

Why aren’t Eroad shares trading today?

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The S&P/ASX 200 Index (ASX: XJO) is having something of a shaky start to this Wednesday’s trading session. At the time of writing, the ASX 200 is up 0.39% to 7,361 points after briefly dipping on market open this morning. But one ASX share that isn’t participating much today is Eroad Ltd (ASX: ERD).

The Eroad share price is currently stuck at $5.78 a share, right where it finished up yesterday afternoon. And that’s where it’s going to stay, at least for a while.

This morning, Eroad came out and told investors through an ASX release that its shares will be entering a trading halt. On both the New Zealand and ASX stock exchanges. Why? Here’s some of what Eroad had to say:

We would like the trading halt to commence from the opening of trading on Wednesday 14 July 2021 and be lifted at the opening of trading on Thursday 15 July 2021. Or on any earlier announcement regarding the outcome of the capital raising discussed below

EROAD is proposing to raise up to NZ$80.5 million of new capital by way of an NZ$64.4 million placementfollowed by an NZ$16.1 million share purchase plan (SPP).

A new road for Eroad shares

So Eroad is conducting a concurrent share replacement and share purchase plan (SPP). What will it be spending this NZ$80.5 million on? Well, Eroad has also released another update on this subject this morning.

The company has told investors it has “entered into a conditional agreement to acquire 100% of Coretex Limited”. Coretex is a “telematics vertical specialist provider delivering enterprise grade solutions”.

This purchase will cost Eroad NZ$157.7 million in upfront consideration. Plus a further NZ$30.6 million if “certain performance milestones” are met. This share placement and SPP that was also announced today will partly fund this acquisition. That is, if shareholders vote in favour of the plan at the company’s annual general meeting on 30 July.

The rest of the funding will come from the issuance of new shares (worth NZ$96 million). As well as NZ$11.8 million in cash from Eroad.

Why is the company buying Coretex?

So why is Eroad proposing to buy Coretex? The company listed a number of reasons:

  • The Acquisition accelerates EROAD’s key growth metrics by two years enabling it to capture the significant growth opportunity in North America and Australia
  • The Acquisition drives synergies and accelerates revenue growth by adding new strategic verticals, providing broader product market fit and increasing customer base
  • Acquisition is accretive from an earnings basis in FY23, following growth investment in FY22 to drive synergies

And here’s some of what Eroad CEO Steven Newman had to say on this proposal:

The acquisition of Coretex is truly transformational for EROAD…

EROAD and Coretex both aspire to create a safer, more sustainable and more productive society. Combining EROAD’s expertise in broadly adopted regulatory telematics solutions with Coretex’s extensive vertical telematics expertise and products creates an advanced market fit.

At the current (and frozen) Eroad share price, the company has a market capitalisation of $473.4 million, and a price-to-earnings (P/E) ratio of 228.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended EROAD Limited. The Motley Fool Australia owns shares of and has recommended EROAD Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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