TomTom – Tele Atlas Not an Acquisition Target?
I’ve finally revived from my long winter nap, hoping that something interesting would have happened in the world of location while I was “sleeping”. I keep looking through my news sources on acquisitions, tools, initiatives, products and research related to spatial data in one form or another, but it appears that a miasma of lethargy has set in, holding the industry in a stand-still. So, I guess we need to focus on what little there is of interest.
This morning, for instance, TomTom announced that its mapping unit, the former Tele Atlas, is not for sale, but thanks for asking. Of course, it had to announce something since it stock has zoomed twenty Euro cents (3.2 percent) before falling back to close at an increase of thirteen Euro cents (a 2.2 percent increase). The announcement from TomTom was made by Taco Titulaer, who is the head of Investor Relations and Financial Communications at TomTom NV (at least that is how he is identified by Bloomberg Businessweek).
Taco, who was quoted in this article from Reuters, was very specific, when he said “Our content assets are core to our strategy and product offering”. He added “TomTom is not considering to divest or sell those assets, which includes mapping.” Seems to me that Taco needs to start reading this blog.
Hmm. Let’s see how well this core strategy has been working. While TomTom acquired Tele Atlas for €2.9 billion in 2008, at the close of the market today the combined entity was valued at just under €1.4 billion. Guess the synergies that stoked TomTom’s ardor for Tele Atlas did not work out quite as predicted. Just why is TomTom’s stock priced so low?
Last February an article in Reuters by Roberta B. Cowan, indicated that TomTom’s key markets were declining so rapidly that TomTom might not be able to shift into new sources of revenue fast enough to avoid calamity. The article was based on a surprise earnings announcement weeks earlier which state that TomTom’s earning would not grow in 2011 and that the PND market would decline over 10-15 percent during the same time period.
It is my opinion that the crux of TomTom’s denial of an acquisition of Tele Atlas is based on three issues. First, TomTom has so closely integrated Tele Atlas that the mapping company no longer exists as a separate entity. Second, TomTom’s business is content, but that content is integrated and involves maps and traffic. Third, TomTom has killed off most of the mapping capabilities that Tele Atlas once had and replaced these compilation skills with updating through MapShare, their PND resident software that allows users of these devices to anonymously report road corrections and the paths of their vehicles during their daily driving. In essence, Tele Atlas could not effectively update its maps without the data feeds from the TomTom devices. In sum, TomTom sees itself as a tightly integrated enterprise focused on content and not a loosely integrated group of operating companies with varied interests. Is being tightly integrated kind of like “putting all of your eggs in one basket?”
It does not require a “ThoughtWatt” (big step) to realize that as TomTom’s PND market declines, the value of Tele Atlas as a mapping company declines even more precipitously. In essence, as fewer PNDs are sold, fewer MapShare corrections will be generated and less traffic will be reported for traffic records. So, the question that was posed to Taco should have been “Is TomTom in discussions with an acquirer?” The answer to that question would be “Yes”, although in corporate speak it would likely be phrased something like this “TomTom is a viable entity forward integrating into the in-dash vehicle market and the market for live traffic.”
I presume that while Taco is reciting the real corporate version of the last statement, he will also be thinking this, “…and any other market that Apple wants to be in.” Well, it may be that some other company that is pursuing TomTom.
However, whether anyone should be interested in TomTom will rest, in part, on how much TomTom has damaged the ability of Tele Atlas to compete in the world of navigable map databases. Note that the “damaged goods” issue may be given less strategic attention if the buyer thinks they have a process that would ameliorate this problem (which Apple does). Conversely, the “damaged goods” issue is always at the heart of potential buyer’s valuation target, while the buyer’s strategy is rarely revealed in any meaningful fashion.
The notion that someone would consider buying TomTom for its assets (Tele Atlas, MapShare, navigation software and the company’s traffic data) is contingent on due diligence to determine whether there is real value in the asset. The value could be in the quality of the data or it could be in the time that buying these data might save someone who needed to have a database of navigation quality to support its growth goals. The company’s traffic assets may or may not be important in this case.
To me, the valuation issue is a very interesting question and one that does not have the same answer that it had in 2008 when Tele Atlas was acquired by TomTom and NAVTEQ by Nokia. I suspect that the fundamental issue may, as noted earlier, have something to do with how badly TomTom and Nokia have stumbled since these acquisitions, but it is likely that the important issues will have more to do with crowdsourcing, citizen mapping and the compilation of anonymous GPS locations and paths to extend and augment the navigation database. Of additional interest is whether these databases will be more focused on attributes of location than navigation?
Hmmm. Sounds like something to dig into next time. Has the market for mobile location services changed the future of mapping? Will GPS paths replace field research, and what role will data quality play in answering the valuation question? More, next time.
By the way, I have decided to spend a couple of days at Where2.0 next month in Santa Clara, CA and hope to see you there.