LiveTiles (LVT:ASX) is raising capital: what should shareholders do?

Last week we noted how LiveTiles (ASX:LVT) waning cash balance was impacting investor sentiment and how the company may soon need to seek additional funding.

So it’s come as little surprise that the company has today announced a capital raise. The question, of course, is whether it represents a good deal for shareholders.

What does LiveTiles do?

Livetiles targets mid to large organisations moving from traditional code heavy digital workplaces to drag and drop, customisable and machine learning oriented intranet software. The business has grown Annual Recurring Revenue (ARR) from $4 million to over $40 million in the last two years.

What does the raise involve?

Livetiles announced a placement of up to $50 million to sophisticated and professional investors, and a Share Purchase Plan to existing shareholders capped at $5 million. Investors can apply for shares at 35c each, a 12.5% discount to the most recently traded price.

Given their current cash position of $14.9 million, and most recent quarterly cashburn of $6.2 million, it would appear this raise will last them quite some time – at least 10 quarters under the current rate of cashburn (although likely much more if this continues to improve).

The new settled shares are expected to be available for normal trading by the 24th of September.

What kind of dilution are we going to see?

With a pre-raise market cap of ~$260 million, this is a substantial raise and could result in substantial dilution for shareholders — up to 21.6%.

The current 6.6x ARR multiple is now going to stretch to about 7.9x given the inflated market capital. That may make short term gains more difficult, but if the new funds can accelerate growth it will ultimately prove justified.

Where to from here?

With a strengthened balance sheet, LiveTiles will be better placed to prosecute its growth ambitions. It should see them through to breakeven provided the funds are well managed. Whether or not shareholders benefit depends entirely on how well the money is invested.

Given the historical return on customer acquisition costs, shareholders certainly have cause for optimism. We’ll get more insight at the next quarterly update in October…

Click below to see the community target price and research on LiveTiles.

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