Why Did QIPT Raise Money Now?
Earlier this week QIPT 0.00%↑ announced a $35 CAD bought deal offering at a price of $7.85/share CAD (approximately $5.90/share USD). This represented a 15% discount on where the stock had been trading. The move surprised investors and, unsurprisingly, the stock has gravitated towards the deal price since the announcement. Breakout Investors Aaron Warwick & Scott Shuda spoke with management today regarding the raise to gain clarity. The key takeaways from this meeting are being shared with our followers here.
In short, QIPT believes it is important for them to have multiple tools in their kit to ensure they are always able to "strike when the iron is hot" in terms of making accretive acquisitions. That means they always want to have plenty of cash on their balance sheet for smaller deals that come their way, in addition to maintaining their current line of credit. QIPT believes this is more important now than it has been at any time in the past decade given the higher interest rate environment and the tightening lending standards/current banking concerns (although, it should be noted, QIPT never expressed an inability at this time to expand their credit line as they grow). Simply put, QIPT needs to be prepared at all times to make accretive acquisitions.
Interestingly, QIPT disclosed that they wanted to raise cash as part of their Great Elm acquisition announced and completed at the beginning of this calendar year. However, they could not stomach to raise the funds at those levels (the $4.40/share level at the time they would have needed to raise). Although management still believes their stock is undervalued, it is at least less undervalued now than it was then. Furthermore, as they noted, they can at least stomach the fact that they achieved a raise at roughly 6x EBITDA while the cash will be used to acquire smaller companies at 2-4x EBITDA later. So, even with them still believing they are undervalued, at least the acquisitions would still be immediately accretive.
The final important point to note is that QIPT will likely issue an ATM in the near future. This would be a housekeeping item and not something the company would intend to use near-term, but would rather provide them with another tool to raise money, if needed, in the future to fund acquisitions without the company being forced into a discount by bankers.
All in all, I believe QIPT did the best they could given their situation. They are intent on gaining scale, which in their industry can only be accomplished, in part, by acquisitions. As QIPT grows, their valuation multiple is likely to expand, as are their margins and ability to win important key insurance contracts. The company was patient to wait for a more favorable valuation now instead of raising the money at a much lower level. Again, this move will help them add another tool to their kit. Ultimately, I believe the company will continue executing on its strategy and following what should be a solid earnings report in mid-May and an addition to the Russell 2000, the stock should once again gain legs for a nice move up.
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