TomTom telematics business should secure attractive multiple from US strategics
TomTom’s [AMS:TOM2] Telematics division should achieve a high single-digit multiple if strategic buyers including Verizon [NYSE:VZ] lead the process as expected, an industry executive and sector banker said.
TomTom announced on 27 September that, after receiving interest, it will explore strategic alternatives for the business, including a sale. The news followed an over 24% fall in the company’s share price on 18 September as carmakers including Renault [EPA: RNO] opted for rival Google Maps.
Interest for the Telematics division should come from both private equity (PE) and strategic buyers, the executive, who has a working relationship with TomTom, and two sector bankers said. Larger PEs are still eyeing the asset, the executive said. It appeals to them because there is still a lot of growth in the telematics market, the first sector banker said.
TomTom’s US peers should lead the process, however, the second banker said. Verizon, which bought Fleetmatics in 2016, would pay a high multiple for TomTom’s business, the executive and bankers said.
TomTom’s business would give Verizon a top spot in the European fleet management space, the executive and first banker said. TomTom is the largest vendor in Europe with a market share of around 9%, according to Berg Insight. Fleetmatics does not have a notable presence in Europe.
Verizon paid USD 2.4bn for Fleetmatics, representing a multiple of 7.7x according to Dealreporter analytics.
TomTom’s telematics division should achieve close to that, the executive and banker said. The Telematics division’s last 12-month trailing revenue as of 30 June 2018 was EUR 167.9m. Using this and the Fleetmatics multiple, would give an implied valuation of EUR 1.29bn, according to Dealreporter analytics.
Car leasing and servicing companies will also look at the fleet management software, the first sector banker said.
While the Google news may have added pressure for TomTom to announce the division sale, that should not be seen as a big factor in its decision, the executive and first banker said.
Splitting the telematics business from mapping has been pitched to TomTom’s founders, who own 44% of the company, several times over the years, they said. They resisted despite minority shareholder TT International writing to them in 2016, saying a split would result in a much higher valuation.
TomTom’s founders were seen reluctant to sell its key divisions – automotive and licensing, and telematics, in the near term, anticipating a good 2018, the executive said. In July (2Q and 1H results) TomTom increased its guidance for the year to EUR 825m revenue from EUR 800m, due to higher demand for its automotive products.
But there is no strategic value to keeping the Maps and Telematics divisions together, the executive and first banker said. It is unlikely they will sell the company as a whole, as there are few synergies between the two main divisions, the banker said.
TomTom received interest for the whole company earlier this year but did not engage, the executive said. Separation will result in higher valuations for the two parts, the banker and executive said. The sale of Telematics could encourage approaches for the Maps division, a second sector banker said.
The maps and licensing business could attract Apple [NASDAQ:AAPL], although it already has a contractual relationship with TomTom to use its data, the first sector banker said. Shares in TomTom fell in June on the news Apple was building its own database.
The Netherlands-based company tried to sell part of its consumer business, Sports, in 2017, the first banker said. TomTom had announced a strategic review of its wearables business in its 2Q results, admitting its expectations for the market had not been met. The company’s founders now want to manage the decline of parts of its consumer division rather than put them up for sale, the first banker and executive said.
Potential buyers for this small division were introduced to TomTom in 2017 but interest was lukewarm, the first banker said. The size of the consumer business was such that TomTom did not employ an adviser for the sale, this banker said.
According to TomTom’s 1H18 results, consumer division revenue declined 24% year on year, while automotive & enterprise and telematics revenue rose 6% and 7%, respectively.
TomTom and Verizon declined to comment.