The SeaLink Travel Group Ltd (ASX: SLK) share price has returned from its trading halt and raced higher on Wednesday.
In morning trade the travel company's shares have zoomed 16.5% higher to $4.56.
Why is the SeaLink share price racing higher?
This morning SeaLink announced the successful completion of its fully underwritten institutional placement and the institutional component of the 1 for 4 pro rata accelerated non-renounceable entitlement offer.
On settlement the institutional placement will raise gross proceeds of approximately $65 million. Whereas the institutional component of the entitlement offer will raise gross proceeds of approximately $43 million. Both at $3.50 per share, which was a 10.5% discount to the last close price of $3.91.
A further $46 million is expected to be raised via the retail component of the entitlement offer. This opens to eligible shareholders on October 15.
Why has SeaLink raised these funds?
SeaLink is raising these funds to acquire Transit Systems Group for an enterprise value of $635 million plus an earn-out component of up to $63 million.
The balance of the consideration is to be funded by the issue of $269 million of SeaLink scrip to the vendors of the Transit Systems and by drawing down on new multi-tranche debt and revolving credit facilities.
Transit Systems Group is Australia's largest private operator of metropolitan public bus services and is an established international bus operator in London and Singapore.
It currently operates approximately ~3,129 buses across 40 contracts in Australia, London and Singapore on behalf of governments, transport authorities and private bodies. In FY 2019 it generated revenue of $895 million and pro forma normalised EBIT of $61 million.
SeaLink's outgoing managing director and CEO, Jeff Ellison, was pleased with the equity raising.
He said "We are pleased with the strong support shown by new and existing institutional shareholders for the equity raising and the acquisition of Transit Systems Group, which will create a large Australian multi-modal transport provider, with established international operations in Singapore and the United Kingdom. We now look forward to completing the Retail Entitlement Offer for the benefit of SeaLink's retail shareholders."
Should you invest?
I think this is a great acquisition by SeaLink and like the way it diversifies its business and provides it with new avenues of growth.
In light of this, I can't say I'm surprised to see its shares rocket higher today. And whilst they are looking closer to fair value now, they could still be worth considering with a long term view.
Elsewhere in the sector, the shares of Qantas Airways Limited (ASX: QAN) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are both lower in early trade.
