The WiseTech Global Ltd (ASX: WTC) share price is locked in a trading halt today after the software-as-a-service logistics business announced it wants to raise $250 million from institutional investors at a price between $20.30 and $21.50 depending on the eagerness of institutional investors. The range represents a discount of between 12.4% and 7.2% on the last exchange traded price of $23.18.
WiseTech's CEO, Richard White elaborated: "Through the Offer announced today, we add further strength to our balance sheet and increase the capacity at which we can accelerate our long-term organic growth, through relentless innovation and the acquisition of strategically valuable assets in important new geographies and key adjacencies."
It's no surprise WiseTech has chosen to 'seize the day' with the company valued at a huge multiple of sales and earnings, despite its acquisitive growth strategy recently leading to it reporting falling EBITDA margins.
For the half-year period ending December 31 2019 WiseTech posted a net profit of just $23.1 million and is guiding for fiscal 2019 EBITDA between $100 million to $105 million on revenue between $326 million to $339 million.
Prior to the capital raising WiseTech had 301.09 million shares on issue to give it a market value of $6.98 billion with an additional $280 million of stock ready to be issued.
If we assume a market value of $7 billion then we can see the company trades on around 21x forecast revenues and 69x forecast EBITDA.
While the SaaS space is hot these kinds of multiples are high compared to others and importantly much of the growth is via acquisitions that are bringing about the need for today's capital raising.
Whether you're buying a car, apartment, or company, the seller has the inside advantage on an asset's real worth, which leaves the constant risk of overpaying for assets especially for a cashed-up buyer like WiseTech.
So while it looks a high-quality operation I expect patient investors may get a chance to snap up shares at lower valuations than the final capital raising price over 2019.
SaaS & the impact of the Aconex deal
Still, I may be wrong given how local 'instos' are still grappling with how to value the SaaS space, with many jolted into a rethink after local tech player Aconex was taken out by U.S. tech giant Oracle at a 46% premium to its last exchange traded price. The premium was over 60% on a volume weighted average price over a longer prior period.
This late 2017 deal is what lit a fire under SaaS shares as some fundies reconsidered how ultra-fast-growing tech companies that didn't make much profit, or shock horror, don't pay a fully franked dividend, should be valued.
Since the Aconex deal we've seen the likes of WiseTech, Nearmap Ltd (ASX: NEA), Altium Limited (ASX: ALU), PushPay Holdings Ltd (ASX: PPH) and Xero Limited (ASX: XRO) all rocket in value on the back of increased insto buying.
