Today’s article is the final article of a three-part series discussing how ALPP has raised capital. My first two articles discussed how ALPP raised capital pre-2021 and then how they raised capital in 2021. This article will subsequently get into my thoughts on how ALPP will raise capital in the future, be it from debt issuances, equity issuances, etc.
This article is obviously complete speculation as I cannot see the future. However, what we can do is apply general finance logic and make some educated guesses on how ALPP will be raising capital in the future. Also, this article will be a bit shorter and to the point as I don’t have pages of regulatory filings to summarize!
Without further ado, let’s get started.
ALPP’s Current State
To help set the stage, we need to take a quick inventory of where ALPP is now as a company. Throughout 2021, ALPP completed a myriad of acquisitions which cover the broad spectrum of their DSF business model, the most recent being RCA and ElecJet in December.
Because so much of the business is currently being integrated into the greater ALPP family, is it extremely unlikely that the company will be profitable in Q4 2021, and they almost certainly will not be profitable for the full year 2021. On a similar note, this also leads me to believe they will still not be generating a positive operating cash flow with which to reinvest in CAPEX, etc.
Furthermore, and I’m not sure if I’ve missed this, I haven’t heard any indication from ALPP management that new acquisitions will cease, or even slow, in 2022. As such, we can likely expect ALPP to continue to seek out now prospects in the M&A market throughout 2022 barring some major market downturn.
So, the key points we need to think of now for 2022 are: 1. ALPP may not be profitable for a few quarters and also may not be cash flow positive; 2. ALPP will continue to be in the market for acquisitions. With that in mind, let’s get into what I think their likely options are.
ALPP – 2022 Capital Raising
I’m sure the blood pressure of the Twitter gang will go up quite a bit, but every indication of what I’m reading above is that more common stock issuances are on the horizon in 2022, with a sprinkling of debt here and there. Why is that? As a smaller company that already has some level of debt and is not cash flow positive quite yet, it will be more difficult for ALPP to find attractive debt financing options.
Debt Financing – Balance Sheet
On the balance sheet side of things, as of Q3 2021, the company had about 47m in liabilities and 97m in assets, leaving about 50m in positive shareholder equity which is a very healthy level. However, when we dig into the current asset base, about 35m of that 50m is from intangible assets and goodwill. From a pure collateral perspective, those types of assets are not seen as favorably to a lender as PP&E. Note – this is all before RCA and ElecJet, so ALPP likely has a bit more wiggle room with its level of leverage-able assets.
Debt Financing – Cash Flow
On the cash flow side of things, lenders like to see positive cash flow or at least the ability to be cash flow positive in the near future. This is where things get a bit more interesting for ALPP investors as ALPP is likely not too far off from being cash flow positive, especially after the RCA acquisition. I cannot see the future, but if I was a betting man, I’d say they could be cash flow positive by Q3 2022.
Debt Financing – Summary
So, when we think about debt financing, ALPP is not the most attractive option at the moment. However, that doesn’t mean they are untouchable like many micro caps. ALPP has found ways so far to receive debt financing, such as the credit revolver they entered into at a healthy interest rate of around 2.50% – 4.25%. For that reason, I’d expect to see some level of debt financing raised by ALPP, likely secured against the assets of newly acquired companies like RCA and ElecJet. However, they are not in full blown “debt financing only” mode yet.
Equity Financing – Common Stock Issuances
As my readers know, I have a much more positive sentiment on dilution than a lot of the frequent Twitter, Reddit, etc. posters. I could drone on about it for pages, but I won’t.
What I will tell you is that ALPP will almost certainly have another funding round of share issuances and dilution in 2022, maybe even several. By my math, their cash position is right back where it started at the end of Q3 after using the entirety of the 24m raised in November on RCA and ElecJet. Therefore, if ALPP wants to continue acquiring, which in all certainty they do, then they are going to need to get cash from somewhere.
As cash doesn’t fall from the sky, as many would lead you to believe, the most attractive option for ALPP at this point is equity financing. They’ve demonstrated in the past that they can quickly raise equity financing at a fair price to market price which makes it much less toxic to current investors. ALPP has also delved into selling warrants, which I am a huge fan of, which will give these new investors even more skin in the game and more reliance on share price upside (an “everybody wins” scenario). Also, institutional investors have taken notice of ALPP as demonstrated in previous funding rounds. So ALPP should have no problems finding investors.
Just to recap then, ALPP will almost certainly get something around fair price market price for its share dilution (no crazy convertible debt type dilution). This capital will likely be immediately invested in acquisitions which, long term, will ideally create even more shareholder value.
Just because people love hot takes, here’s my hot take: my best guess is ALPP will raise around $60m in common stock issuances and around $15m in debt issuances. That’s $75m to play with on the acquisition front. I then expect the cash flow of existing businesses to sustain the operations of the company by the latter half of 2022. In other words, they won’t need new financing to cover operating cash flow deficits. Not guarantees obviously, but I have to make some bold claims every once and awhile!
As an ending note, and I feel like I need to say this every article, but if current investors actually believe in ALPP, the CEO, etc., then dilution is not exactly a bad thing. If you trust ALPP, then the money will be raised at a fair price and reinvested effectively to create long term shareholder value. If you don’t trust a company to dilute, then to be honest you shouldn’t even be invested in them in the first place. Period. Rant over!
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DISCLAIMER – AT THE TIME OF WRITING THIS ARTICLE I DO NOT HAVE A FINANCIAL INTEREST, LONG OR SHORT, IN $ALPP. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. AT THE TIME OF WRITING THIS ARTICLE, PERSONS AFFILIATED WITH THE COMPANY ANALYZED ABOVE MAY BE PROVIDING MONETARY COMPENSATION AS MONTHLY PATRONS THROUGH MY PATREON. THIS COMPENSATION IS NOT PROVIDED IN RETURN FOR ANY SERVICE, WRITING ABOUT A PARTICULAR TOPIC, AND/OR FAVORABLE OR UNFAVORABLE OPINIONS. MY PATREON SUPPORTERS HAVE NO INFLUENCE ON THE CONTENT OF MY ARTICLES.