Nick Scali shares halted amid $60m capital raising and UK expansion news

This furniture retailer has its eyes on the UK furniture market.

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Nick Scali Limited (ASX: NCK) shares won't be going anywhere on Wednesday.

That's because the furniture retailer has requested a trading halt this morning.

Why are Nick Scali shares in a trading halt?

The company requested a trading halt today while it undertakes a major capital raising.

According to the release, the company is seeking to raise $46 million through an underwritten institutional placement and $4 million via a conditional placement to an entity associated with its CEO, Anthony Scali. The latter will be subject to shareholder approval.

In addition, retail shareholders will be invited to participate in a non-underwritten share purchase plan to raise up to $10 million.

Combined, Nick Scali will be aiming to raise $60 million at $13.25 per new share. This represents a 5.8% discount to where its shares last traded.

Why is it raising funds?

The proceeds from the capital raising will be used to fund its expansion into the UK.

The release reveals that Nick Scali has entered into agreement to acquire specialist UK home furniture retailer, Fabb Furniture, for a total consideration of 3.5 million pounds (A$6.7 million) including debt.

In addition, the company intends to pay 0.5 million pounds (A$1 million) to exercise the option to exit Fabb Furniture's existing distribution centre arrangement and also provide a net working capital injection of up to 6 million pounds (A$11.5 million).

Following the acquisition, Nick Scali then intends to invest further in the existing Fabb Furniture network in order to establish the Nick Scali brand in the UK. This includes via store refurbishments and re-branding, establishment of a new distribution centre, and new store openings.

Commenting on the acquisition, Nick Scali CEO, Anthony Scali, said:

The Acquisition of Fabb Furniture provides an opportunity to enhance our geographic diversity and scale beyond Australia and New Zealand for the first time. The Acquisition provides us an immediate entry point into the large UK market with a 21-store network across key locations; a scaled platform to establish the Nick Scali brand and product offering in an attractive new market.

Fabb Furniture's gross margin is estimated to be approximately 10 percentage points lower than larger UK competitors on a like for like basis. As we did when we acquired Plush, we believe we can leverage the Nick Scali buying power, combined with our supply chain and logistics capabilities, to deliver significant gross margin uplift for the UK business.

Nick Scali shares are expected to remain out of action until Monday.

Motley Fool contributor James Mickleboro has no position 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 recommended Nick Scali. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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