“WiseTech has been clear that its acquisition strategy has not been about revenue roll-up,” he said. “It is about bringing in talented and knowledgeable people and critical IP, converging this IP with WiseTech’s own technology to optimise our development pipeline, accessing new markets and customer bases, accelerating our geographic expansion and solidifying CargoWise as the leading integrated global logistics software solution of choice for the major players in the market.”

WiseTech was founded in Australia in 1994 and provides software services for the trillion-dollar global logistics industry. It listed on the Australian Securities Exchange in April 2016 and is one of the leading WAAX stocks (WiseTech, Appen, Afterpay and Xero), driving its growth through an aggressive acquisition strategy making 37 acquisitions for a total of $708 million since June 1, 2015.

However, analysis by Viceroy based, on company reports and publicly available information, shows revenues in a majority of these businesses have flatlined or are in decline, margins are substantially below WiseTech’s consolidated group margins and many of the businesses do exactly the same thing in different countries.

“We cannot see how WiseTech has an out-of-the-box solution while continuously requiring acquisitions of small-time customs clearance players in obscure geographies,” Viceroy analyst Gabriel Bernarde said.

The majority of these acquisitions are claimed by WiseTech to be “not significant” despite the large cash and contingent payments being made to make the purchases.

In 2020, WiseTech’s acquisitions cost $76.3 million including earnouts, generated $20 million in revenues, and $800,000 of profit on a pro rata basis.

In 2019, its acquisitions cost $228.1 million in cash, $22.7 million in equity and $141.1 million in deferred consideration. The acquired entities would have generated $49.3 million in revenue and $500,000 in net profit on an annualised basis.

In 2018, Wisetech’s acquisitions cost $94 million in cash and $102.5 million in deferred consideration generating $42.3 million in revenue and $7.4 million in net losses on an annualised basis.

WiseTech trades about 23.1 times revenue and its $708 million of acquisitions have added about $174 million in revenue to the consolidated group.

Viceroy claims WiseTech overpays for acquisitions through contingent factors such as a performance-based earnouts if post-acquisition performance hits certain targets. “These earnouts are included in the purchase price (goodwill) of acquisitions, however, these performance targets are rarely met,” Mr Bernarde said.

Viceroy has previously exposed ASX-listed sandalwood grower Quintis, graphite miner Syrah, as well as South African conglomerate Steinhoff, German asset-leasing company Grenke and German fintech Wirecard.

While short sellers play a key role in the market, some have come under criticism for publishing highly damaging reports designed to cause maximum damage to the targeted companies. Short sellers bet against a share price by borrowing a stock, selling it on the open market with the view of buying it back at a lower price for a profit.

WiseTech has been a perennial target for short sellers and was hit by Beijing-based J Capital last year which claimed the firm had overstated its profits by $116 million since listing and questioned its acquisition-driven growth.

The claims caused $2 billion to be wiped off WiseTech’s valuation at the time but since then, the company has bounced back, reporting a 23 per cent lift in revenue to $429.4 million for this financial year to June 30 and a 17 per cent lift in EBITDA to $126.7 million.

The analyst community is divided on the merits of WiseTech’s acquisitions strategy. Morningstar analyst Gareth James is unconvinced about the rationale underpinning the deals. “WiseTech has acquired a lot of companies that don’t really make very much money at all,” he said.

“If the business isn’t going to give them anything and all they are getting is the people then they might as well just hire the people right?”, he said.

However, other analysts such as TMS analyst Ben Clark believe it has done a good job of addressing questions over its strategy and accounts. “Maybe there was an acquisition here or there that didn’t translate to what they were saying but to us, the overall acquisition strategy makes sense and I strongly don’t believe it’s being employed to somehow prop up the core business earnings,” he said.

“I still think if management can execute well it could be one of the true global businesses that is listed on the ASX and I think they’re slowly taking off on that kind of journey.”

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