WiseTech to ‘accelerate CargoWise platform expansion and development’

The software maker is renegotiating earnout arrangements for a raft of subsidiaries.

ASX-listed logistics software maker WiseTech Global's founder and CEO, Richard White. Picture: Hollie Adams/The Australian

Shares in software company WiseTech Global fell more than 5 per cent after the company doubled down on its CargoWise strategy, while renegotiating earnout arrangements for a raft of subsidiaries.

The Sydney-based company — which has previously been targeted by short-seller accusations of undermining acquired businesses to push clients onto its flagship CargoWise One platform — said the ongoing priority for its strategic acquisitions was to “accelerate CargoWise platform expansion and development”.

In a statement released on Thursday afternoon, the Sydney-based technology company said the “current environment” had enabled it to renegotiate earnout arrangements with 17 of its subsidiaries, reducing the company’s overall contingent liabilities from $215.5m to $68.5m.

Cash earnouts were terminated for 13 acquired businesses, and for another four — Cypress, Depot Systems, Forward, and SISA — they were replaced with equity deals.

WiseTech said it had issued an equity issuance of $81.4m — $45.7m of which remains escrowed for 12 months.

Earnouts are an incentive structure in mergers and acquisitions where the seller of the business earns additional compensation in the future for reaching specific financial goals.

However, the strategy update and new share issuance triggered a sharemarket sell-off, with WiseTech shares shedding 5.77 per cent of their value on Thursday, wiping around $360m off its market capitalisation.

They closed at $21.06, well above lows of $10.48 hit in mid-March but some way from February’s high of $29.44.

In a statement, WiseTech founder and chief executive Richard White said the company was “focused on delivering value for shareholders”.

“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,” Mr White said.

“Through our small, targeted, strategic acquisitions in recent years we captured hard-to-access capability, development capacity and feet-on-the-ground in key geographies.”

WiseTech also said it would set out to review the earnouts for a “number of remaining acquisitions”. The WiseTech Global group owns 36 businesses in total.

In October last year, Hong Kong-based short seller J Capital launched an attack on the company for its acquisition history, sending WiseTech’s shares into a 13 per cent plunge and forcing the company into a trading halt. The second report of two reports by J Capital, which interviewed 18 former employees, blasted the company’s CargoWise strategy.

“Our interviews suggest that, contrary to WiseTech’s public narrative, it is harming the companies it acquires by under-investing and jacking up prices on legacy platforms to force clients to move over to CargoWise One,” the report said.

“We believe that, when WiseTech slows or stops acquisitions, shareholders will realise they own a motley global collection of small, poorly integrated companies with dispirited staff.”

The claims were rubbished by WiseTech, which accused J Capital of profiteering on the back of inaccurate information. ““They didn’t ask us any questions, they didn’t really do any research on our data and what they wanted to do was lob a bomb in the market during trading,” Mr White said at the time.

On Thursday, the company also said it expected the earnout renegotiations to represent a one-off gain of $69.5m, but this wouldn’t affect revenue or earnings before interest, tax, depreciation and amortisation.

Mr White said the company continued to deliver robust cash generation.

“In the current environment, our business continues to demonstrate resilience and tracks in line with our expectations,” Mr White said.

“Throughout this period and into the 2021 financial year, we will continue to take the necessary actions to prioritise critical technology development, drive cost, cash and capital efficiency, and build our competitive position globally.”