All eyes are on the DroneShield Ltd (ASX: DRO) share price today after details of its capital raising emerge.
Shares in the counter-drone defence company were frozen at $1.39 yesterday morning following a trading halt request. Today, they are sinking 17% to $1.15 as the trading gates reopen.
Information about the proposed financing began trickling out via LinkedIn yesterday afternoon. However, the company has released the full details in an official ASX announcement.
Let's assess how DroneShield plans to put an extra $120 million to work.
What do we know
The drone defence business has completed a $120 million underwritten placement, securing capital from new and existing institutions and sophisticated investors domestically and internationally.
According to the release, DroneShield intends to use the capital to:
- Fund artificial intelligence (AI) research and development (R&D)
- Fuel rapid growth
- Fund strategic technology acquisitions
Regarding R&D, AI will be used to devise completely new counter-drone products alongside revamped versions of existing products. The company believes there is an 'opportunity to accelerate and enhance its AI software infrastructure and hardware capabilities'.
By doing this, DroneShield aims to cement its position as a 'market leader' in the counter-drone industry. Management also believes this will improve gross profit margins as the company increases the revenue derived from 'AI-enabled software solutions'.
Around 104.3 million DroneShield shares have been issued to raise $120 million for funding these efforts. The breakdown of capital uses is summarised in the table below:
| Intended use of funds | Amount ($ millions) |
| Research and development | $90.0 |
| Acquisition funding | $20.0 |
| Working capital and offer costs | $10.0 |
Commenting on the placement, DroneShield CEO Oleg Vornik said:
This placement is enabling us to undertake a number of rapid R&D programs in response to end user requirements, over the next 12-24 months.
This favourably positions DroneShield to fuel its revenue growth and further increase its margins, due to anticipated increase in AI SaaS offerings and higher sales pricing for the underlying hardware, as the C-UxS market continues to rapidly grow, supported by the current tailwinds through drones being used extensively for nefarious purposes globally.
Settlement of the placement is expected to occur on 6 August.
Impact on existing DroneShield shares
Because the placement was only available to institutional and sophisticated investors, everyday investors — like you and I — couldn't participate. Unfortunately, that means there will be some dilution.
How much? You might ask.
It'll be around 14% dilution from the increased number of DroneShield shares outstanding.
Finally, the placement was undertaken at a 17.3% discount to the company's last traded share price of $1.39. In other words, investors who were able to participate in the capital raising snagged more shares at $1.15 a pop.
