Where next as WiseTech announces renegotiated earnout arrangements
We examine the implications of WiseTech’s latest ASX announcement.
WiseTech Global (WTC) today announced that it had renegotiated the earnout arrangements with 17 of its acquired businesses. Centrally, as part of these renegotiations, the company said it would be looking to substitute cash payments with equity and 'reduce and close-out future earnouts.’
These changes, said the company, will help shore up WTC's balance sheet and liquidity position. Moreover, as a consequence of all this, WiseTech’s contingent liabilities will fall from $215.5 million to $68.5 million and $151.5 million of future contingent cash liabilities will be removed.
Adding to this, $81.4 million worth of equity will be issued as a result of these negotiations; though $45.7 million will remain in escrow for 12 months.
On a more granular level, WiseTech noted that the following acquired companies had agreed to a complete close-out of future cash earnouts, including: ABM Data, CargoIT, Cargoguide, CargoSphere, CustomsMatters, DataFreight (LSI), Microlistics, Pierbrid, SmartFreight, Softcargo, SaaS Trans, Trinium, and Xware.
By comparison, Cypress, Depot Systems, Forward agreed to a 'part immediate equity close-out, and part future equity earnouts of $10.9 million based on product development.'
Even with all this considered, the ever growth-focused WiseTech stressed that it would still be looking to make acquisitions to accelerate the growth of its CargoWise platform. Though today’s announcement suggested it would be doing such in a more considered way, with the company noting it would conduct earnout reviews across its other acquired businesses in the coming months.
In response to today’s announcement, WiseTech’s Founder and Chief Executive, Richard White said:
'The current environment provided us with the opportunity to restructure previously agreed acquisition earnouts, ensuring we can better drive those resources, accelerate their contribution to CargoWise development and further improve our commercial efficiency.’
Commenting on the nature of WiseTech’s acquisition strategy in recent years, Mr White went on to note that 'Through our small, targeted, strategic acquisitions in recent years we captured hard-to-access capacity, development capacity and feet-on-the-ground in key geographies.'
WiseTech share price: an old attack reawakened
In a blistering set of short reports released in late 2019, research house J Capital alleged that WiseTech had misstated its organic growth figures and used acquisitions to inflate its profits, amongst a raft of other issues.
Unsurprisingly then, J Capital weighted in on WiseTech’s release today, further questioning WiseTech's accounting practices, the dilution implications of today’s announcement and Mr White's categorisation of WiseTech's acquisitions as 'small and targeted.'
Overall, the market responded negatively to WTC's release in the first few hours of trade, bidding the stock down 2.6%, to $21.77 per share by 11:09am. The ASX 200 benchmark by comparison traded bullishly, rising 2.23% to 5,903 points, before noon.
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