M&A Alert - December 1, 2009
TeleCommunication Systems Agrees to Acquire Networks in Motion
Transaction Overview
On December 1, 2009, Telecommunication Systems (NASDAQ: TSYS) agreed to acquire Networks in Motion for $170mm in a combination of cash, stock and promissory notes.
Target Description
Networks in Motion (NIM) provides wireless navigation applications that deliver location-centric information for GPS-enabled mobile devices. NIM allows mobile phone users to find points of interest, real-time maps, traffic conditions and provides turn-by-turn driving directions, enabling users to find and go to locations such as the nearest ATM, restaurant or supermarket on-the-go. NIM’s primary customer base has been wireless service providers, most notably Verizon Wireless. Other carrier customers include Sprint, Alltel, TELUS and a recently announced agreement with AT&T. NIM also offers its application directly to consumers via the Apple and BlackBerry application stores. As of the end 2008, NIM had 3.5m users, who generally pay a $9.99 monthly subscription fee. Competitors include Navteq (which was acquired by Nokia in July 2008), Telenav (which filed for an IPO in November 2009), TeleAtlas, DeCarta, Appello, TomTom, Garmin and most notably Google. Since inception, NIM had raised a total of $15mm funding from Mission Ventures (Ted Alexander), Redpoint Ventures (Brad Jones) and Sutter Hill Ventures (James White). Founded in 2000, the company is headquartered in Orange County, California.
Buyer Description
TeleCommunication Systems (TCS) is a wireless data solutions provider offering commercial text messaging and location-based technology, including E911 services and navigation applications, as well as secure satellite-based communications systems and services for the U.S. Government. Customers include leading wireless and VoIP carriers around the world, cable MSOs, automotive telematics vendors, and agencies of the U.S. Departments of Defense, State, and Homeland Security. TCS is known for its Rand McNally Traffic, a wireless traffic map application for mobile phones offered on a subscription basis. As of 2008, TCS provided services to 40 wireless and VoIP service providers. Given the strategic importance of this acquisition and relative size, Maurice B. Tose, CEO, was the key executive sponsor of the acquisition. Founded in 1987, TCS is headquartered in Annapolis, Maryland and has a current market capitalization of $430mm.
The $170mm purchase price is funded via a combination of $110mm cash, $20mm in TCS’ common stock and $40mm in promissory notes. While NIM does not formally disclose revenue, in Q2 2008, NIM’s CEO, Doug Antone indicated monthly revenue of $3mm. We believe that CY 2009E revenue is expected to be on the order of $60mm.
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| Equity Value of Consideration | $170mm |
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| Equity Value / Revenue Multiple | |
| 2008 Multiple1 |
4.7x |
| 2009E Multiple2 |
2.8x |
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1) 2008 Revenue is estimated at $36mm based on NIMs’ $3mm monthly revenue, as indicated by Doug Antone, NIM’s CEO
2) 2009 Revenue is estimated at $60mm
Strategic Rationale
TCS has been expanding its location-based services footprint via acquisitions for some time. Most recently, in May 2009, TCS acquired Location Logic (formerly AutoDesk’s Location Services Business) for $25mm, bringing a location determination platform and family finder application into the fold. NIM brings a well regarded and widely distributed application layer navigation product, nicely complementing TCS’ location-based offerings to wireless carriers.
Architect Partners’ Observations
Location-based services generally, and navigation specifically, are very dynamic areas currently. A number of recent strategic moves have buffeted the navigation sector, not the least of which has been the unveiling of Google’s strategy. Navigation applications have been one of the highest revenue generating application categories for carriers over the past couple of years as consumers have been willing to pay a hefty subscription fee for high quality turn-by-turn navigation on their cell phones. Google’s recent move of integrating turn-by-turn capability (and voice search) into Google Maps for Android 2.0 (for no fee) has directly threatened that revenue stream. Of particular note, this is an expensive transaction for TCS. The cash component of consideration requires drawing down a substantial proportion of available cash balances. Also the common stock component is being valued by the public market at approximately 1.5x revenue, a very substantial discount to the value being offered to NIM.