My initial reaction was anger as well.
The dilution is such that the current owners of the company now only own 42% of the company. The dilution is more than double.
100 / 42 = 2.38
Profits must increase by 2.4 just for the original shareholders to break even.
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Of the $5 million raised, the "estore" acquisition will add $16 million in revenue and provide 11 stores. The purchase price is $2 million.
There are two other acquisitions presently being examined.
Let's assume management finds another investment with similar revenue/purch price ratios for the remaining $3 million generated. This would add an additional $24 million in revenue.
Meaning a total of $40 million revenue could be added to the $27 million in revenue Story i already generates.
$67 million / $27 million = 2.48x increase in revenue
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One would hope the profit increase would be even greater, given economies of scale and the potential to eliminate redundancies. I am hardly excited about this deal; but it is not nearly as bad as it initially appeared. If revenues increase by 2.5 times, but profits quadruple, then we are ahead, despite the dillution.
Going to hold my position for now to see how this all shakes out. I guess I'm happier for believing the company is not actively trying to steal from me and does have shareholder interests in mind (or is at least trying to grow revenue and earnings, even if at the expense of present shareholders). This still leaves a bad taste in my mouth though. I'd have much rather seen them take out a $2 million loan to purchase "estore" than a huge, unnecessary equity raising at all time lows.
I realise the equity raising is "safer" for management leaving no debt to service. It will be no small task integrating purchases that double or triple revenue. I'd been expecting good news just from ordinary organic growth. Now that my shares are only worth 40% of what they once were due to dilution, this prospect is not near as exciting. Hope the acquisitions make the dilution worth it...
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My initial reaction was anger as well. The dilution is such that...
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