In an unusual bit of dealmaking, Nokia bought geo-tagging vendor MetaCarta in April and then turned around and sold it three months later. The recent divestiture might appear to be a botched acquisition. However, as we look closer at the deal, it turns out that Nokia actually got what it wanted out of the purchase. It is retaining MetaCarta’s engineering team while shedding its enterprise accounts to Qbase. (Nokia didn’t really have any use for the startup’s enterprise business, which was largely oil and gas industry as well as government installations.)
Cambridge, Massachusetts-based MetaCarta employed approximately 20 development engineers, plus 15 enterprise sales and support staff. Although terms of the deal weren’t disclosed, we understand that Nokia paid about $30m for MetaCarta. If we look at the price in terms of what assets Nokia actually wanted to obtain, we pencil it out at about $1.5m per engineer. This is obviously an expensive way to recruit personnel, and underscores the increasing pressure that Nokia is seeing in the mobile-mapping space.
Nokia ‘hired’ MetaCarta’s engineers to reinforce the search feature in Ovi Maps, Nokia’s most popular application. MetaCarta is a specialist in geo-tagging unstructured text such as websites and emails. While mapping competitor Google does the same, MetaCarta’s information will be layered on NAVTEQ’s mapping data, which is arguably more detailed than Google’s maps.
The transaction is another in the long line of acquisitions that Nokia has made in its move toward mobile advertising. However, Nokia’s rivals have also been active in the mobile M&A space. Research In Motion reached for GPS vendor Dash Navigation in June 2009. In November 2009, Google outbid Apple and bought AdMob for $750m. In response, two months later, Apple picked up Quattro Wireless for an estimated $275m. Nokia hasn’t made a purchase of this magnitude, but we still believe it could be on the hunt for additional mobile providers. The company could build on its MetaCarta acquisition by buying location-based advertising vendor 1020 Placecast. The San Francisco-based firm is a major strategic partner of Nokia’s NAVTEQ, and would supplement MetaCarta’s geo-tagging capabilities.
-Email Thomas Rasmussen
It’s becoming increasingly evident that once-dominant makers of personal navigation devices, such as Garmin and TomTom, have lost their way. They have seen billions of dollars in market capitalization erased as smartphone manufacturers have encroached on their sector, largely through M&A. Consider the most-recent example of this trend: Research in Motion’s acquisition of startup Dash Navigation earlier this month.
RIM’s buy is more of a catch-up move than anything else. Rival Nokia has already spent the last few years – and several billion dollars – acquiring and building a dominant presence in the location-based-services (LBS) market. And let’s not forget about the omnipresent Google. Starting with its tiny 2005 purchase of Where2, the search giant has quietly grown into a LBS powerhouse that we suspect keeps even the larger players up at night.
The Dash Navigation sale may well signal the start of some overdue consolidation, a trend we outlined last year. Specifically, we wonder about the continued independence of TeleNav, Telmap and Networks in Motion. TeleNav, for instance, is the exclusive mapping provider for the hyped Palm Pre through Sprint Navigation. But with the trend for open devices, we wonder how long that will be the case.
In a time of increasing competition and decreasing margins, the once-soaring navigation companies seem to have lost their bearings. Former Wall Street darlings Garmin and TomTom both reported lackluster quarters last month. Although overall revenue at both companies is still solid, other lines on the P&L sheet have deteriorated – notably margins. Both companies are now trading near 52-week lows, down roughly 70% from their highs for the year. (Undoubtedly, Garmin will face some investor ire when the company holds its shareholder meeting on June 6.)
With fierce consolidation and price declines, the issue facing Garmin and others is how to differentiate themselves from the new entrants that range from conglomerates Nokia and Research in Motion to small startups such as Dash Navigation. (Looming over all of this is the phenomenal success of Apple’s iPhone.) We foresee 2008 being a year of further consolidation as Garmin continues to shop in an attempt to retain its competitive edge.
Garmin’s gross margins are down to less than 50% from 70% just a few years ago and are expected to decline to below 40% this year, according to CFO Kevin Rauckman. The new competitive environment has forced a steep decline in average selling price: the company’s personal navigation device sold for $500 just a few years ago, but now the gizmo goes for half that amount. Garmin has stated that it intends to stave off the price erosion by setting up its products as a premium brand, much like what Apple did with the iPod. In order to achieve this, Garmin has been looking to make acquisitions in the content segment and will launch its first mobile phone, the Nuvifone, which looks, sounds and works eerily similar to a GPS-enabled iPhone.
So which companies might be ripe for the taking? Aside from the expected distribution acquisitions such as Garmin’s rumored purchase of Raymarine, mapping, traffic and content provider startups such as Dash, Inrix and Networks in Motion offer the kind of technology that Garmin needs. Moreover, if Garmin is serious about branching into the complex mobile phone market, a case could easily be made for an acquisition of longtime partner Palm Inc. The struggling pioneer was reportedly in play last year, but instead opted to have Elevation Partners take a 25% stake in the firm. Palm’s valuation has since been cut in half; we believe the company could surely be had for cheap as investors are eager to recoup their losses. Debt-free Garmin is cash-rich with about $600m, plus another $550m in marketable securities. So financing acquisitions is not a big issue for the company. The real question is whether Garmin can navigate a margin-boosting plan into place before it plummets off a cliff.
Signs of a consolidating industry
|Oct. 1, 2007
|July 23, 2007
Source: The 451 M&A KnowledgeBase