Advantage Group pulls plug on Australian deal

By PETER GRIFFIN

Battling the effects of a sagging tech sector, Auckland IT company Advantage Group has cancelled an agreement with Australian web services firm Whitewolf and effectively ended its interest in the company. .

Advantage's Australian subsidiary bought into Whitewolf (KCS Australia) in August last year with an agreement to pay $A7.5 million ($9.14 million) in cash and shares.

The company was quickly integrated into Advantage's enterprise services unit.

As part of the agreement, Advantage agreed to stump up a further bundle of shares to the value of $A1.5 million - but only if Whitewolf achieved earnings before interest, tax, depreciation and amortisation of at least $A2 million by June.

It seems that Whitewolf failed to meet that target.

The chief financial officer of Advantage, Stewart McKenzie, said it had been dissatisfied with Whitewolf's performance, but he would not comment on whether the company had met its earnings forecast.

"The issue relates to how the business was portrayed to us at the time of purchase.

"What we expected the business to do, that hasn't happened," Mr McKenzie said.

Legal action between Advantage and Whitewolf's former owners is under way.

It could allow for the former owners to buy back Whitewolf, repaying Advantage in the process.

Mr McKenzie was adamant that Advantage's desire to shed Whitewolf did not indicate that the company was retreating from the Australian market.

"We're still operating in the Australian market through our Campbell Pope business, which is going well," he said.

Advantage has completed a $4.3 million takeover of Campbell Pope, an internet business service provider which sells expense management systems in the Australian market.

At the time of buying Whitewolf, Advantage's then chief executive, Greg Cross, said the company would provide a "beach head" for Advantage's delivery of electronic services to the Australian and United States markets.

In August, Advantage reported a loss for the June year of $65.8 million.

Of that, $60 million came from a writedown in goodwill associated with companies which were picked up during the dotcom excess of the high-tech boom.