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Real estate group The Agency (ASX: AU1) plans to keep expanding despite its latest acquisition raising some financial red flags.
The group has announced a capital raise of approximately $4.5 million, which is just higher than the $4.2 million loss it posted in FY19.
Of the amount raised $1.5 million will go toward potential acquisitions and growth capital, $1.7 million for repaying existing debts, $400,000 for offer expenses and $900,000 for working capital.
The three-year-old company's takeover of Top Level - known for its brand Sell Least Property - was completed in January 2019 following a capital raise of $13.4 million.
The acquisition played a big part in contributing to an increase in the number of agents, listings and properties sold, and while it ultimately triggered a loss The Agency's revenue rose by 86 per cent to $31.3 million.
Top Level was acquired for a substantial $10.5 million, well above The Agency's own market capitalisation of $7.06 million at the time.
The company now has a market cap of just $8.45 million.
Whether the business is spending beyond its means remains to be seen, but this capital raise appears to indicate it intends to continue acquiring and consolidating the market.
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