AfterPay (APT) raises capital again – are we buying the story?

Stock

Afterpay Touch (APT) $24.17 as at 11/06/2019

Event

News today that the super successful buy now pay later platform APT is raising $300m in fresh equity plus the founders are attempting to  sell down ~$100m worth of stock. The raising is being done in a few different parts and we’ll go through them below. In terms of the use of funds, APT is a lending business, so more growth = more requirement of capital and by raising $300m this should allow them to grow their book 4 fold. It’s a big raise.

 

Terms; A placement to institutions at a price set by demand, but not less than $21.75, which is a 10% discount to the last closing price. A minimum of $300m will be raised through insto’s and the deal is underwritten. Retail holders will then get the chance to buy up to 15k worth of stock at the same price as institutions, or if the price of APT drops post placement, the average price of the shares in the 5 days before the offer is closed.  The retail component will raise ~$30m.

 

The ~$100m of founder shares is being bought by two US investors, Tiger Management & Woodson Capital – neither of which are current holders from what I can see today. The sell down by the founders Eisen & Molnar equates to about 1.3% of the company each, leaving them holding a combined ~16% of the group, down from ~19%. They won’t sell anymore for another 4 months. One condition of this sell down is that placement must be fully subscribed for, which seems very likely.

 

The good: The placement is being done to underpin growth amid strong US demand for their product. By raising $300m, they can substantially grow their book.  Two US funds are cornerstoning the placement of founder stock so they are likely to be longer term holders + the story is obviously resonating in that market.

  

The bad: When founders start selling this can create ongoing overhang in the stock + of course the insto placement saps natural demand. They’re also raising money now given the strength in recent share price – its opportunistic but hard to fault the rationale from the company.

Afterpay Touch (APT) Chart

Market Matters Take/Outlook

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