The WiseTech Global Ltd (ASX: WTC) share price is currently up 1.5% after announcing that it is making a Canadian acquisition.
WiseTech is acquiring Fenix Data Systems, which is a Canadian customs management solutions provider.
According to WiseTech, Fenix is based in Ontario and offers a rage of Canadian customs compliance solutions to customers like DHL Express.
The purchase cost is an initial $2.5 million, with future earn-outs as much as $0.8 million which relates to integration and revenue performance.
In 2016 Fenix earned $0.9 million of revenue and $0.1 million of earnings before interest, tax, depreciation and amortisation (EBITDA). Fenix will be in WiseTech’s accounts from July 2018.
WiseTech founder and CEO, Richard White, said “Border security, tariffs and cross-border clearances into and out of the US are a critical compliance component. Fenix brings deep customs and border technical expertise, with a specialised focus on cross-border road and rail movements, into the WiseTech Global group adding further expertise, volume and strength to our US Canada cross-border solution.”
The ASX release acknowledged that this transaction has strategic value, but is not material to the WiseTech Global business.
I hope Fenix generated more EBITDA than $0.1 million in 2017 because otherwise $2.5 million seems like a very steep price to pay, even if it’s only a small acquisition.
WiseTech clearly has a strategy that’s working for the business, however I hope WiseTech are not just acquiring businesses for growth’s sake alone.
I’m personally don’t own WiseTech shares and the valuation is far too rich for me to consider buying any at the moment.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.