WTC +4.7%: Today announced its biggest ever acquisition, agreeing to buy E2open Parent Holdings in a deal that values the US company at $US2.1 billion (A3.2bn), a 28% premium to Fridays close. This was not totally new news to the market, with WTC having flagged the potential acquisition, and provided a detailed rationale of the proposed transaction in recent weeks. The deal is being funded via a $3bn debt facility from a syndicate of banks, namely Bank of America., Barclays, Deutsche Bank, HSBC, ING, National Australia Bank, JPMorgan Chase & Co., Sumitomo Mitsui and Westpac Banking, which in itself, has the effect of shoring up market confidence in the company after a tough 6 months or so for the logistics software provider.
The acquisition will add around 5,600 customers to WiseTech and is expected to be earnings accretive in year one. E2open employs around 4,000 people and had revenue of $US608 million in the financial year ended February, though, it’s been struggling to grow. This is the opportunity for WTC, buying rather than building, and in the process, picking up a lot of new customers that can be exposed to the WTC product range.
- We view this as a good deal for WTC, and while it materially increases their debt to a level that we’d call ‘high’ for a software company, they have set out a road map to get debt back to a better level in the next few years. Margins are also expected to take a hit, in the short term at least, given E2opens’s weaker financial metrics, but again, these should recover.
Backing White and Co is the key here, and their track record of integrating acquisitions is impressive, albeit this one is more than 5x their next biggest transaction.
MM remains long and bullish WTC ~$105
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