TCS acquires LocationLogic for $25M

TCS acquires LocationLogic for $25M
TeleCommunication Systems, Inc. (TCS) a global provider of wireless communications technology and LBS, has acquired the assets of LocationLogic (formerly part of Autodesk), which supplies LBS infrastructure, middleware and applications, for approximately $25 million, comprised of $15 million paid in cash and $10 million in TCS shares.

LocationLogic assets were initially acquired by private equity investors Hale Capital Partners and Hale Global from Autodesk earlier in 2009. In terms of business, substantially all of the LocationLogic revenue stream is recurring service revenue from hosted infrastructure software and location-based applications. “Based on 2009 run rate revenues of $18 million and EBITDA of $5 million from customers which include two leading US wireless carriers, TCS expects the acquisition to be immediately accretive in 2009”, said the press release from TCS.

"The addition of LocationLogic assets strengthens TCS in four significant ways," stated Maurice B. Tosé, TCS chairman and CEO. "First, it enhances our LBS infrastructure platform, providing key authentication and privacy technology to better position us to win new carrier business. Second, LocationLogic expands our LBS application portfolio beyond navigation, traffic, and points of interest by adding family locator, mobile resource management, and phone recovery and security applications. Third, it deepens our longstanding relationships with Verizon Wireless and Sprint Nextel, two of the largest North American carriers and leaders in LBS. And fourth, the acquisition adds about 10 patents and 12 patent applications that are complementary to our existing patent portfolio. Overall, we expect this acquisition to further solidify our LBS leadership in an industry which is at the early stages of what is widely viewed as a long term, high growth market."

ABI Research - market share for location-based services infrastructure (07-08)
ABI Research - market share for location-based services infrastructure (07-08)
Operator centric approach at risk
Despite the fact TCS CEO is describing a bright future for the LBS market it is important to highlight the fact that wireless carrier are increasingly losing control of their position as a key element in the value chain and that both TCS and LocationLogic have had so far an operator centric strategy on this market.

A recent report from Strategy Analytics pinpointed this trend in identifying Google and Nokia as significant threats to carrier ambitions. “Nokia has made significant moves in location-based services through its acquisition of mapping data provider, Navteq, and smaller companies, such as Plazes and bit-side”, explained David MacQueen, Director at Strategy Analytics. “Nokia’s significant handset market share, combined with its ability to integrate location applications onto its handsets, places it in a strong position to compete with carrier and internet brands for ownership of location service users. Similarly, Google’s significant brand strength and carrier independent location positioning database threatens to disintermediate the operator from the location services value chain.”

The handset App store hype is further increasing this trend since all of the LBS applications sold through these stores are de facto bypassing operators's location platforms. Obviously many North American wireless operators continues to keep a walled garden approach to location but the iPhone and Android appeal will put an end to it soon or later.

According to what was heard in the call with financial analysts, TCS management seems to continue to believe that operators are the main gatekeeper to the LBS market. To grab a larger share of the LBS market TCS will have to reposition its product offering towards a broader set of customers such as handset manufacturers, Internet brands and independent developers.

Wednesday, May 20th 2009

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