GPS device vendor TomTom has agreed a 2bn euros ($2.76bn) deal to acquire digital mapping company Tele Atlas as it seeks to break out of the portable navigation device market and establish a position in a broader navigation market, stretching from automobiles to mobile phones.
TomTom’s installed user base of more than 10 million GPS devices will operate as map, and the integration of their feedback into the map production process will constantly correct and update Tele Atlas’s map data. A new map every day for everyone, said TomTom CEO Harold Goddijn. As soon as change happens in the network, we want to bring this into the map.
While conceding that not all of the user base would feed through corrections, Goddijn said they received 10,000 corrections a month, filed laboriously on its web site. Compared with the 50 surveyors employed by Tele Atlas, it would be a step change to incorporate corrections from users.
Goddijn was anxious to emphasize that Amsterdam, Netherlands-based TomTom is basically a software company and that the PNDs currently flying off the shelves in developed countries are just containers for that software.
TomTom increased sales in 2006 by 89% to $1.79bn. It also revealed yesterday that in its second quarter to June 30, net income rose 80.6% to 68.3m euros ($94.5m) on revenue up 37.2% at 380.3m euros ($525.9m). It said it is sticking to its forecast that sales this year will be between 1.6bn and 1.8bn euros ($2.2bn and $2.48bn).
TomTom has upgraded its forecast for the PND market in 2007. It now predicts that the European market will grow from 8.5 million units in 2006 to between 14 million and 15 million units, while the US market will grow from 2.5 million units to between 6 million and 7 million units.
TomTom, which slugs it out with Garmin for market dominance, will be aware that not only are PNDs tumbling in price, but have a bleak long-term future as navigation systems become standard features in new vehicles. The technology has already become available in smart phones and is due to become a mass-market feature for users’ pedestrian navigation. It will also open up revenue streams to carriers with the ability to offer advertised services in the proximity of users.
TomTom signaled its wider software ambitions with the acquisition in January 2006 of Edinburgh, UK-based Applied Generics, which offers anonymous monitoring of all the active subscribers in a mobile network that in turn enables the provision of precise road traffic information in real time. It can, for example, pick up a traffic snarl up by spotting phone users not moving on a major route. The system is due to be rolled out by Vodafone in the Netherlands in the second half of this year and in the UK in the first half of 2008.
After the merger, Tele Atlas will continue as a separate unit in the combined group, and TomTom said it would be free to sell its digital maps to its competitors.
When Tele Atlas’s cash reserves are taken into account, the enterprise value of the deal falls to 1.8bn euros ($2.48m). TomTom will pay from the deal with cash reserves and bank borrowings. TomTom is entitled to a break-up fee of 20m euros ($27.7m) if the Tele Atlas board recommends a higher offer.