Grafenia raises £28m for acquisitions, bond repurchase

Manchester-based Grafenia, a serial acquirer of vertical market software (VMS) businesses, announced a fundraising of up to £27.9 million via a conditional share sale placing and subscription, supported by new and existing investors.

Proceeds of the fundraising will be used to fund future acquisitions, repurchase certain of the company’s existing bond arrangements and pay deferred consideration on previous acquisitions.

The Manchester firm was previously known as a graphics firm but over the years it moved from a franchise model with to a software licensing model with Nettl.

Grafenia also published results for the year ended March 31, 2023, showing revenue rose 1.5% to £12.55 million

The placing and subscription to raise £23 million will be at an issue price of 8.5p per share, and an open offer to qualifying shareholders to raise up to £4.9 million will also be at 8.5p per share — a discount of 17.1 % to the closing mid-market price of 10.25p per ordinary share on August 25, 2023.

Grafenia shares fell about 1o% after the announcement, but the shares are up about 70% for the past year.

“We plan to use the proceeds of this fundraising to acquire more VMS businesses that match our criteria,” said Grafenia.

In the short term, while the company is seeking to identify and negotiate further acquisitions, the company expects to utilise some of the proceeds from issue of the first placing shares to repurchase certain of its existing bond arrangements.

“Following discussions with bond holders and the company’s substantial shareholders, the board expect to repurchase up to £7.6m of bonds at 87% of their face value (utilising up to £6.6m of the proceeds of the fundraising excluding accrued interest payable and costs).

In addition, the fundraising will enable the company to pay £3.4m of deferred consideration that will become due for the first four acquisitions, and £0.3m of fundraising costs.

The company expects to utilise the remaining amount to acquire VMS businesses that match our criteria.

“The company plans to finance further acquisitions with a prudent mix of equity and debt which may include further restructuring of the remaining bond facility.

“Alongside this, the company plans to source traditional bank debt facilities to provide a long-term funding option to support the company’s serial acquisition strategy.”

In his “current trading and outlook” Grafenia CEO Gavin Cockerill wrote: “Our new financial year started in April.

“We’re currently trading in line with our internal forecasts and newly acquired business units are performing as expected.

“With the acquisitions we’ve added to the group, on a run-rate basis, annualised sales would be approximately £17m.

“We’re therefore cautiously optimistic about the upcoming year. With a full year’s trade from our newly acquired businesses, our goal of achieving EBITDA at 10-15% of sales, after central costs, remains a realistic target.

As we further reposition our business, the search for VMS businesses continues and our deal flow looks healthy.

“As previously announced, we are looking to raise additional funds to continue the execution of our acquisition strategy, both in terms of new acquisitions and funding existing obligations, and the growth of the group.”