Digital Wine (ASX:DW8) share price plunges on acquisition and cap raise

The company’s expansion moves aren’t enough to entice investors today

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The Digital Wine Ventures Ltd (ASX: DW8) share price is sliding into the red today. Shares are currently changing hands at 6.25 cents apiece, a fall of 5.3%.

It comes after the company shed further light on its previously announced acquisition and capital raise.

Here are the details.

Digital Wine’s new acquisition and cap raise

Digital Wine announced today it had “accelerate(d) its penetration of the $17 billion Australian wholesale liquor market” via the acquisition of wholesale beverage marketplace Kaddy Australia Pty Ltd.

Kaddy is “Australia’s leading B2B (business-to-business) beverage marketplace enabling discovery, ordering and payments”, according to Digital Wine.

The venture capital specialist closed the transaction on a $6.75 million cash consideration and approximately 484.9 million of its own shares.

It believes the transaction is a “transformational opportunity to bring together two high-growth technology businesses to create the market-leading online marketplace” servicing the wholesale liquor market in Australia.

Digital Wine also ran through an extensive list of reasonings and justifications as to the key drivers of the acquisition.

Most of these are centred around synergies the two businesses lend each other. This will enable a mix of diversification and competitive advantages for each.

For instance, Kaddy does not have a logistics platform in situ and is reliant on third-party fulfilment by its suppliers.

Digital Wine’s WINEDEPOT asset solves this issue. It brings together its “tech-enabled logistics solution and Kaddy’s market-leading technology platform…to unlock significant value for its users and support the rapid scale of the merged businesses”.

In addition to the acquisition, Digital Wine is set to provide expansion capital to Kaddy. This will help the company grow its operations.

Digital Wine has therefore initiated a $14.75 million capital raising round to finance the expansion of Kaddy’s growth engine. It has received commitments of $12.75 million already via a share placement. All eligible shareholders are able to participate on the same terms.

What did management say?

Commenting on the news, Digital Wine CEO Dean Taylor said:

The combination of a world class B2B marketplace with a tech-enabled national logistics platform will create an unrivaled value proposition that’s relevant to every liquor licence holder in the country. Kaddy strongly complements our technology ecosystem and fast-tracks our ability to develop a stronghold in Australia’s $17 billion wholesale liquor market.

Digital Wine share price snapshot

The Digital Wine share price has gained 46% this year to date. It has climbed 5% during the past 12 months.

That’s well behind the S&P/ASX 200 index (ASX: XJO)’s gain of around 19% in that time.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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