Shares in Cash Converters International Ltd (ASX: CCV) fell sharply on Wednesday after the company resumed trading following its $25 million equity raising announcement earlier in the week.
At the time of writing, the Cash Converters share price is down 8% to $0.32, as investors weigh the dilution from the new share issue and the discount applied to the offer price.
Capital raise update
Cash Converters announced on Wednesday that it had successfully completed the institutional component of its capital raising, securing $15.7 million through a fully underwritten $5 million placement and an accelerated institutional entitlement offer that raised $10.7 million at $0.305 per share (which is a 12.9% discount to last Friday's closing price).
The remaining retail entitlement offer is expected to raise approximately $9.3 million. It opens on 3 November and closes on 17 November.
The company said demand for the institutional component was strong, with both new and existing shareholders participating. Major shareholder EZCORP Inc, which owns around 44% of Cash Converters, subscribed for its full entitlement worth $8.7 million and will sub-underwrite up to $2.18 million of the retail offer.
Funding a strategic acquisition
Proceeds from the equity raise will be used to fund the $37 million acquisition of 29 franchised stores across New South Wales, Queensland, the ACT, and Tasmania. The stores, collectively known as the Cash Converters Investment Group, are being acquired for a 4.5x FY25 EBITDA multiple and are expected to be earnings-accretive in the first full year of ownership.
The deal will expand Cash Converters' corporate-owned network from 92 to 121 stores, giving the company greater operational control and allowing it to capture more of the earnings upside from its retail and lending operations.
CEO Sam Budiselik said the company was pleased with the "strong demand in the bookbuild" and welcomed new institutional investors to the register.
Market reaction
Despite management's optimism, the market response was cautious. The sharp fall in share price reflects investor concerns over short-term dilution and integration execution risk.
While the acquisition aligns with Cash Converters' long-term strategy of consolidating franchise stores, investors will be looking for evidence that the company can deliver the expected synergies and earnings lift once the acquisition is completed.
For now, the 8% drop suggests the market is taking a wait-and-see approach.
What's next
The institutional component of the entitlement offer has been completed, with the retail offer opening on 3 November and closing on 17 November. Trading is expected to stabilise as the market absorbs the new supply of shares and investors digest the longer-term benefits of the transaction.
Management at Cash Converters has made the case that the acquisition is a compelling strategic fit that will enhance margins and earnings quality once integrated. For now, however, the stock's 8% slide suggests investors want to see execution, to match the ambition.
