Garmin Ltd (GRMN), one of the leading providers of navigation devices into the outdoor/fitness, aviation, marine and automotive markets recently beefed up its business in Europe.
Garmin announced the acquisition of European navigation device provider Navigon AG, 90% of which is owned by private equity firm General Atlantic Partners. Although Garmin did not announce the price, a German daily reported in early June that Garmin offered 50 million euros ($72.14 million) for the company.
Navigon brings several advantages to Garmin. The most obvious of these is its relationships with mobile phone, automotive and consumer electronics OEMs. Garmin could leverage on these relationships to grow its position in Europe.
Navigon has very popular mobile apps for Apple Inc’s (AAPL) iPhone and Google Inc’s (GOOG) Android-based phones in both Europe and North America. The company has stated that its apps are used by two million people across the two continents. This is despite the fact that the app is priced at around $75 in Europe and $60 in the U.S.
Garmin’s StreetPilot app, on the other hand, has been struggling against the stiff competition in the U.S. market, despite the fact that it is priced at just $35. We think Garmin’s limited success is partly on account of its late start, as both Navigon and rival TomTom have had apps for some time now.
Garmin initially tried to enter the market with its own smartphone (nuviphone), but was beaten back by the crowded market, dominated by companies, such as Apple, Research In Motion (RIMM), Nokia Corp (NOK), Palm — since acquired by Hewlett Packard Company (HPQ) — and a large number of players making phones based on Android.
Garmin had banked greatly on this strategy, since mobile phones were expected to rapidly displace the personal navigation devices (“PNDs”) used in automobiles. However, as luck would have it, the smartphone market did eat into its core business (automotive) and the nuviphone was far from successful.
That was when Garmin altered its strategy, going from the nuviphone to apps for mobile phones and in-dash solutions for automobiles. This is the only way the company may be able to sustain its position in the North America market, where it remains one of the largest players.
The acquisition is especially significant, because it simultaneously gives the company an opportunity to expand in Europe as well. Navigon has a 7% share in the European PND market (according to news reports), so Garmin’s 23% market share immediately jumps to 30%. Navigon is particularly strongly positioned in German-speaking countries and has the leading market share in terms of revenue in Finland.
Garmin has made a large number of acquisitions in the past. In fact, its initial push into Europe included the acquisition of most of its European distributors. Therefore, management has previous experience in integrating European companies.
Also, time is short for the company, since its core automotive business is disappearing rapidly and alternative strategies to boost the business are required. Acquisitions constitute good use of cash in our opinion. Additionally, Garmin’s diversification strategy is going extremely well, where it is introducing new products and tying up with OEMs to generate both growth and stability.
Garmin shares carry a Zacks Rank of #3, implying a Hold rating in short-term (1-3 months). Our long term view remains Neutral.
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