Capstone secures $10 million convertible note facility for acquisition plans

NEW YORK - Capstone Holding Corp. (NASDAQ:CAPS), a building products distributor with a market capitalization of $9.24 million and trailing twelve-month revenue of $43.42 million, has closed a $10 million convertible note facility, drawing an initial $3 million to support its acquisition strategy, the company announced Wednesday. According to InvestingPro analysis, the company appears slightly undervalued at current levels.

The building products distribution platform will use the initial funds primarily to finance its pending acquisition of a Southeast U.S.-based distributor of thin veneer stone and hardscape materials, which is currently under a non-binding letter of intent.

"This facility gives us the speed and flexibility to grow with discipline without compromising our capital structure," said Matt Lipman, CEO of Capstone Holding, in a press release statement.

The convertible note facility, closed on Tuesday, includes an original issue discount of 8.34%, a 7.0% annual interest rate, and matures on July 29, 2026. The facility is convertible at the investor’s option into Capstone shares at a conversion price of $1.72 per share, according to terms disclosed by the company.

Subsequent draws from the remaining $7 million will be subject to mutual consent between Capstone and the investor.

Joseph Gunnar & Co., LLC served as the exclusive placement agent for the offering.

Capstone, which operates in 31 U.S. states through its Instone subsidiary, continues to pursue additional acquisition targets with a focus on founder-led businesses in high-growth markets. With current gross margins of 21.08%, the company is targeting a full-year revenue run-rate of $100 million through organic growth and strategic acquisitions, representing significant growth from its current revenue base.

Complete details of the transaction will be available in the company’s upcoming 8-K filing.

In other recent news, Capstone Holding Corp. announced that its Instone subsidiary has secured a $1 million order for PangaeaⓇ Natural Stone for a luxury resort development in the Mountain States region. This marks Instone’s first major development in the area, with $200,000 already delivered for the project. The stone will be used in more than 30 homes within the luxury resort community, featuring two new profiles added earlier this year. Additionally, Capstone Holding Corp. has maintained its financial goals for 2025, targeting a $100 million revenue run-rate and $10 million in adjusted EBITDA by year-end. CEO Matthew Lipman expressed confidence in achieving these targets through organic growth and strategic mergers and acquisitions. The company is evaluating acquisition opportunities valued between 4-6x EBITDA and plans to finance these deals with a mix of cash and non-cash considerations. To support its acquisition strategy, Capstone has arranged an Equity Line of Credit to avoid high-interest debt or significant equity dilution.

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