Tag: LBS

Wayfinder finds its way to a decent exit

Brenon Daly

Contact: Brenon Daly

Even in write-offs, it’s not impossible for companies to come out ahead. That’s what we were thinking when we saw the news that Vodafone pulled the shutter down on the Wayfinder Systems business that it acquired a little more than a year ago. Of course, in the year since the second-largest wireless operator picked up the turn-by-turn navigation vendor, a lot has changed in that market. Most notable, it’s gone from a paid service to a free offering, thanks to Google and, more recently, Nokia.

That development has erased hundreds of millions in market cap from the two main suppliers of traditional navigation devices, Garmin and TomTom, and turned them into laggards on Wall Street. (Since Google announced in late October that it was adding free turn-by-turn navigation to a small number of Android devices, Garmin stock has shed 5% and TomTom has flat-lined, while the Nasdaq has posted a 12% gain.) Given the pressure that’s been felt by those two giants – both of which garner more than $1bn in annual revenue – we have to wonder if Wayfinder isn’t pretty content with selling the business back in December 2008.

It isn’t hard to see a scenario in which a tiny company ($14m in trailing revenue) that traded on an obscure stock exchange (the Nordic Growth Market) would have been deeply wounded – even fatally so – by the commoditization of its business. (That’s what happened to Nav4All, for instance.) Instead, Wayfinder managed to sell the business for about $30m, representing a 200% premium and a decent valuation of two times trailing sales. The alternative strikes us as pretty bleak. Had it not done the deal, Wayfinder could very well have been in the process of winding itself down. As it was, Vodafone wound it down, but at least Wayfinder and its backers pocketed a bit of money before that.

Is mobile advertising back?

-Contact Thomas Rasmussen

In a clear sign that mobile advertising has grown up, Google spent a whopping $750m in stock on Monday to pick up San Mateo, California-based AdMob in what we hear was a contested process. This transaction goes a long way toward securing control of mobile display advertising for Google and comes just days after the launch of Android 2.0. Although we’ve been projecting dealmaking in the mobile advertising market for quite some time, we’re nonetheless floored by the rich valuation for AdMob, a three-year-old startup that’s raised just shy of $50m. We estimate that the 140-person firm pulled in about $20m in gross revenue in 2008 and was on track to double that figure this year (we surmise that this translates to roughly $20m on a net revenue basis).

The double-digit valuation for AdMob reminds us more than a little bit of the high-multiple online advertising deals that we saw in 2007. Viewed in that context, Google’s purchase of AdMob stands as the third-largest ‘new media’ advertising purchase since 2002. Of course, like many of those transactions, this was not based on revenue, but instead on technology and market extension, which is consistent with Google’s strategy of acquiring big into core adjacencies.

Looking forward, AdMob’s top-dollar exit is sure to have a number of rival mobile advertising startups excited. One competitor that’s preparing to raise an additional sizable round of funding quipped at the near-perfect timing of this transaction. This is an industry that has seen its ups and downs over the past few years. When we first wrote about AdMob back in May it was in the backdrop of fire sales and failed rounds of funding. If nothing else, this deal will dramatically change that.

Microsoft has been actively playing catch-up to Google in advertising and search, and is sure to follow it onto the mobile device. As are many other niche advertising shoppers such as Yahoo, Nokia, AdKnowledge, Adobe-Omniture and traditional media conglomerates such as Cox. AOL has already made its move, reaching for Third Screen Media two years ago. (We would note that AOL’s $105m purchase of Third Screen is a rare case of that company actually being ahead of the market.)

Startups that could benefit from this increasing focus on the sector include AdMarvel, Amobee, InMobi, and Velti’s Ad Infuse. However, we suspect that some of the major advances – and consequently the most promising targets – are likely to come from players that are just now getting started, with fresh and profitable approaches to location-based mobile advertising.

Some recent mobile advertising deals

Date announced Acquirer Target Deal value Target TTM revenue
November 9, 2009 Google AdMob $750m $20m*
September 14, 2009 Nokia Acuity Mobile Not disclosed Not disclosed
August 27, 2009 AdMob AdWhirl Not disclosed Not disclosed
May 21, 2009 Limelight Networks Kiptronic $1m $2m*
May 12, 2009 Velti Ad Infuse <$1m* $1.3m*
March 11, 2008 Qualcomm Xiam Technologies $32m Not disclosed
August 21, 2007 Yahoo Actionality Not disclosed Not disclosed
May 15, 2007 AOL Third Screen Media $105m $3m*

Source: The 451 M&A KnowledgeBase *451 Group estimate

Navigating for relevance in a changing landscape

-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.

M&A ramp-up for Facebook?

-Contact Thomas Rasmussen

Facebook’s rumored offer for micro-blogging site Twitter had the Web all atwitter recently. The $500m bid was reportedly rejected because it came in the form of a stock swap, with Facebook inflated to the infamous $15bn valuation that the social network got in Microsoft’s investment a year ago. Judging from our talks with insiders throughout the year, everyone knows this is a ludicrous valuation. Still, we wonder why some people – including big media – are still bandying this around, and more to the point, why Facebook thought Twitter would buy into the valuation. (More realistically, bringing the valuation down to earth, the offer amounts to $100-130m.) Nevertheless, the rumored run at Twitter confirms our speculation in June that Facebook, which has hardly ever dabbled in M&A, is gearing up to go on a substantive shopping spree. If that’s the case, it could do a whole lot worse than roping in Loopt.

When we first reported on this possibility, we had heard that initial talks were under way. However, the less-than-stellar adoption of the overhyped location-based services (LBS) applications probably put a damper on the enthusiasm. Nonetheless, recent developments have made LBS an attractive area again: Android devices have hit the market, the iPhone continues to sell well and Nokia is rolling out its own sleek new smartphone. Granted, the degree to which people are interested in having friends and family track their every move is debatable. But for Facebook and other social networks, which essentially base their entire business models on our instinct to pry into each other’s business, adding Loopt’s service to its currently static desktop and mobile offering is a no-brainer. And if Facebook was willing to hand over north of $100m to acquire Twitter, spending the same amount on Loopt, which is roughly where we pencil out its valuation, would make a lot more sense.

Social network M&A, 2006-2008

Period Number of deals Total known deal value
2008 YTD 32 $98.3m
2007 12 $149.7m
2006 8 $31.1m

Source: The 451 M&A KnowledgeBase

Location-based stalking?

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Nokia has been going navi-crazy lately. Last week, the Finnish conglomerate bought location-based social networking company Plazes for an estimated $30m. This comes as the company is wrapping up the largest acquisition in its history – the $8.1bn purchase of Navteq. We believe this is just the beginning for Nokia and others in the excessively hyped mobile location-based services (LBS) space. The question arising from this acquisition, as well as Vodafone’s $48.7m acquisition of Zyb in May, is what these acquisitions mean for the rest of the market. One implication is already clear: GPS technology has been commodified. (Just ask shareholders of Garmin, who have seen the stock skid to a two-year low.) With this technology popping up on dozens of devices, we expect hardware vendors to be even more active in snapping up LBS startups.

Nokia plans to roll Plazes into its Nokia Maps division, which itself was formed from the acquisition of gate5 in late 2006. It is part of Nokia’s overall strategy to have GPS technology play a large role in expanding beyond just being a mobile hardware company. Nokia claims it will sell upward of 37 million GPS-enabled handsets this year alone. The approaching worldwide release of the GPS iPhone, as well as Research in Motion’s push to include the technology in most of its BlackBerry devices, make it clear why high-profile backers such as KPCB and Sequoia Capital are so excited about LBS applications.

Beyond being a simple technology purchase, however, Plazes and other future deals will likely bring another important component to the apps: users. Despite their hype and position as leaders in the space, services such as Palego’s Whrrl, Loopt and Brightkite have fewer than a million users combined. Compare that to the hundreds of millions of users that ‘traditional’ social-networking sites such as Facebook and MySpace command, and one wonders what the hype is all about. By pairing up with larger companies, however, the services get instant access to millions of users. It is the technology and expertise that rumored suitors such as Facebook, Microsoft, Google and now the mobile carriers and hardware manufacturers are interested in. With continued consolidation, the fear of being left behind in a potentially important market will drive many to acquire first and ask questions later. Nokia might have just lit the fire in the M&A race to dominate the LBS market.

Seven signs of a consolidating LBS industry

Announced Acquirer Target Deal value
June 2008 Nokia Plazes $30m*
June 2008 Polaris Hughes Telematics $700m
May 2008 Vodafone Zyb $48.7m
October 2007 Nokia Navteq $8.1bn
July 2007 TomTom Tele Atlas $2.8bn
July 2007 Springbank Resources Location Based Technologies (fka PocketFinder) $50m
August 2006 Nokia gate5 $250m*

*estimated, Source: The 451 M&A KnowledgeBase

Loopt scores at Apple’s WWDC

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As Apple’s Worldwide Developers Conference winds down, the hype for the new iPhone is only beginning. Amid all the hoopla, though, we couldn’t help but make an observation about not so much what was in Steve Job’s all-important keynote, but what wasn’t. Specifically, Kleiner Perkins Caufield & Byers’ much-touted iFund was only mentioned in passing, and none of the surprisingly few ventures were highlighted. (KPCB has written checks to just three companies, out of thousands of applicants.) In fact, a major competitor of iFund’s location-aware application Whrrl, Loopt, was a highlight of the keynote. This comes as somewhat of a surprise after Palego’s Jeff Holden and KPCB partner Matt Murphy spoke highly of their relationship with Apple in a May 27 BusinessWeek article and even speculated on the chances of being a featured app. This led many to believe they were a shoe-in for the keynote. Given Apple’s obsessive demand for radio silence prior to the event, perhaps loose lips do indeed sink ships.

Loopt is funded by KPCB competitors New Enterprise Associates and Sequoia Capital to the tune of $15m. It has a few hundred thousand paying customers, but more importantly, it is the leader in the mobile location-aware-social-networking space spanning several carriers and operating systems. This is a market that has seen a lot of interest from the likes of Google, AOL, Microsoft and even Facebook. In the aftermath of the conference, whispers and rumors of potential acquirers of this little app are all over the place.

Since Google let Plaxo go to Comcast and has failed with its in-house development (Orkut), the search engine has been itching to make headway in the sector through acquisitions. Given Google’s huge push into the mobile space, it is seen as a likely acquirer. However, we think the most probable acquirer is Facebook. The soaring social networking site has been serious about pushing into mobile-social-networking, and a pairing of Facebook’s mobile application with Loopt seems a perfect fit. Since valuations in the social networking space are like something out of the bubble era, it is not unrealistic to see a price tag of just south of $100m for Loopt, a 40-employee startup. With healthy cash reserves and an estimated $400m in revenue for 2008, Facebook has the resources. In fact, though this would only be its second acquisition, we understand Facebook has been gearing up to make more acquisitions in the coming year. If indeed Loopt is taken off the block, rivals Palego, Zyb, and Buzzd may follow in quick order.

Traditional social networking acquisition deals for more than $50m

Announced Acquirer Target Deal Value
May 14, 2008 Comcast Plaxo $160m*
March 13, 2008 AOL Bebo $850m
March 4, 2008 Demand Media Pluck $67m*
May 30, 2007 eBay StumbleUpon $75m
July 18, 2005 News Corp MySpace $580m

* official 451 Group estimate, Source: The 451 M&A KnowledgeBase

Mapping vendor Garmin searches for direction

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

Announced Acquirer Target Deal value
Oct. 1, 2007 Nokia Navteq $8.1bn
July 23, 2007 TomTom Tele Atlas $2.8bn

Source: The 451 M&A KnowledgeBase