Wisetech Global Lists on ASX at $1bn valuation
The new darling of the ASX, Wisetech Global Ltd yesterday listed on the ASX and met forecasts with its share price closing 16% above the list price of $3.35. This confirms it’s $1b valuation and locks in some stratospheric EV (enterprise value) multiples of more than 29x proforma FY16 forecast EBITDA and 18x proforma FY17 forecast EBITDA.
How can an IPO listing achieve multiples anywhere between 2 - 10 times that of most ASX blue chip stocks?
Typical of many technology/software firms it also used an EV : revenue mutiple to provide a comparison valuation. This method is rarely used for traditional non-tech businesses, but has become more popular with tech-style companies where profits are expected in the future, along with significant revenue growth.
But this should not mean that every tech-startup should trot down to their “local VC or investor centre” expecting to get the same valuations on rosy sales and EBITDA forecasts based on a prospectus that is often nothing more than a powerpoint about a great idea.
There are major differences between many tech-style startups seeking investors and the valuation of Wisetech:
The business has been operating since the early 90s and has demonstrated market history.
It is already participating in a global market with software sales in other countries already established.
Reported revenue in FY13 was $43m and $70m in FY15.
Reported EBITDA in FY13 of $4.1m and $10.1m in FY15.
It has a substantial postive free cash flow in FY14 and FY15 ($6.1m & $7.7m respectively) AFTER ongoing capital investment.
It has total net assets of $70m and $90m of intangible assets.
Postive working capital of $7m and modest debt gearing of approx. 30% of total assets.
Substantial management team with an employee base of more than 500 people.
So clearly Wisetech is NOT an:
Early stage start up with no cash.
A business devoid of a history of achieving results.
A business reliant on key owners or individuals.
An “idea bubble” that lacks planning, detailed product documentation and demonstrated products.
Also evident from the Wisetech is that the EV:EBITDA multiple is projected to decrease to 18.5x in FY17 on the back of a forecast increased earnings results, indicating that in time they expect the valuation to come “into line” with other established software firms and the broader market. In other words the valuation is not skyrocketing forever with no evidence of a return to earth.
Technology inventors and software startups should be wary of trying to claim astronomical multiples for powerpoint presentations and focus on producing results, systems and documented and demonstrated IP.
Tech-related SMEs should be aware of the significant differences between themselves and Wisetech - a 20x plus EBITDA multiple is not achieved without results and something tangible product. Even an IT-based SME needs solid numbers, size and scale, systems and a management team to achieve more than a 4x EBITDA multiple.
It remains to be seen whether Wisetech can maintain the valuation multiples it has listed with - which are “heady” numbers in a cautious investment market. But the $1b capitalisation it has now benchmarked is based on solid results and performance.
IT-based SMEs are a long way removed from these stratopheric valuations and business owners should take note of the effort that has gone into creating $1b in value.
Download our whitepaper on the “Ins and Outs of Valuation” at http://www.maxellconsulting.com.au/