Evolve Education Group plans to raise $63.5 million at a 65 per cent discount to repay debt and fund a push into Australia.
The capital raised will help strengthen the childcare operator's balance sheet just ahead of announcing its annual results, which it said will show a further $75m impairment charge on the company's goodwill, taking the total writedown to $107.1m.
Underlying earnings before interest, tax, depreciation and amortisation were $13.3m in the year ended March 31, within its latest guidance, but down from $21.6m in the prior year.
Evolve wants to sell 793.2 million shares at 8 cents apiece in a 4.4-for-1 pro rata accelerated entitlement offer, a discount to yesterday's closing price of 23 cents. The capital raising was part of a strategy agreed with its lender, ASB Bank, which will be repaid $30m, which Evolve said will let it stay within lending covenants and support a three-year turnaround plan.
The company's board will also go through some changes, with chair Alistair Ryan retiring on June 15 and director Norah Barlow retiring at this year's annual meeting.
"I am confident that, as a result of the additional equity capital we are raising, the progress the management team is making in improving the New Zealand business, and the opportunity for expansion in Australia, Evolve's future prospects are significantly enhanced," Ryan said in a statement.
Evolve stopped buying properties last year and sold its Porse In-Home Childcare and Au Pair Link businesses as it struggled with declining enrolments, high staff turnover and flat Ministry of Education Funding.
It listed in late 2014, raising $132.3m in an initial public offering, and was a roll-up of several childcare businesses by Greg Kern and Russell Daly of Queensland-based Kern Group.
The capital raising is fully underwritten by Canaccord Genuity (Australia) and Forsyth Barr Group. Director Chris Scott, who owns 19 per cent, has committed to take up his entitlements. Recent board appointments Scott and Chris Sacre were former executives of Australian childcare firm G8 Education.
Of the funds raised, $25m will go towards Evolve's planned foray across the Tasman, where it plans to buy up to 12 centres, with a view to immediately boosting annual ebitda by $5-6m. Scott and Sacre will lead the Australian expansion.
Evolve's board forecasts underlying earnings of $8.5-11m from the 128 New Zealand centres in the year ending March 31, 2020, and that earnings will recover the following year.
The company will keep $5.5m of the funds raised for working capital, and pay $3m to cover the cost of the offer.
No dividend will be paid for the March 2019 financial year, and directors will provide more details on the future dividend policy at the annual meeting.
Trading in the shares has been halted for institutional investors, with the offer for retail investors opening on May 13 and closing on May 29.