The ELMO Software Ltd (ASX: ELO) share price has fallen over 4.4% after coming out of its capital raising trading halt.
ELMO Software was founded in 2002. It’s a cloud-based HR and payroll software provider for businesses. The idea is that it offers a single platform for organisations to unify and streamline the HR processes whilst also managing payroll, rostering and attendance. It sells its software on a recurring subscription model.
ELMO’s Capital Raising
ELMO announced yesterday that it would be raising $55 million from institutional investors with a fully underwritten capital raising. It will also be carrying out a non-underwritten share purchase plan (SPP) totalling $5 million for regular investors.
The software business said it’s going to used the raised money to invest in sales & marketing, research & development as well as client services to “take advantage of the large market opportunity and expansion in its addressable market.”
ELMO is also staying open to the idea of acquisition opportunities that would either expand its existing offering or acquire customer lists that would provide cross-selling opportunities.
Management reminded investors that its annual recurring revenue increased by 48% in FY19, but there’s plenty more room for growth.
ELMO said that there are an estimated 23,813 organisations and a broader product set, putting the value of ELMO’s total addressable market at $2.4 billion. ELMO currently has a 5.6% market share in Australia & New Zealand with an average penetration of 2.4 out of 13 of its modules, so there’s a lot of potential to increase the HR module penetration for existing customers.
What Happened Today?
ELMO confirmed today that it raised $55 million at $6 million from institutional investors, an 8% discount to the last closing price.
And, as the company also said yesterday, some pre-IPO shareholders sold shares worth around $35 million to increase liquidity and take some profit off the table.
ELMO CEO Danny Lessem said: “We are very pleased with the level of institutional support for the raising both from existing and new shareholders, and we welcome our new shareholders to our register. We look forward to the next phase of the company’s growth with their support.”
ELMO is certainly generating a lot of growth and the software as a service (SaaS) model is very popular with investors. I’m not sure what the right price to pay is for such a fast-growing business, but it’s certainly one to watch.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.