Seeking Alpha
Long/short equity, special situations, value
Profile| Send Message|
( followers)  

Trimble Navigation (TRMB) announced on Monday that it will acquire privately-held TMW Systems, in a deal valuing the firm at $335 million. Shareholders of Trimble are enthusiastic, sending shares 3.5% higher during the session.

The Deal

Trimble Navigation announced that it will acquire TMW Systems, a leading provider of enterprise software systems, for transportation and logistics companies. Combined, TMW & Trimble's software solutions span the entire transportation lifecycle. TMW currently employs 500 workers, and jointly with Trimble will serve more than 3,000 fleets across the world.

Trimble will pay $335 million in cash for TMW Systems, financed through an existing credit facility.

CEO David Wangler commented on the deal, "Trimble's global presence will provide a strong channel for extending TMW's reach and scope, beyond its leading position in North America. Together, our complementary technologies can deliver exceptional returns on information that improves our customers' operational efficiencies and allows them to deliver superior customer service."

Over the past twelve months, TMW has generated revenues of $96 million. The transaction is expected to be dilutive to Trimble's fourth quarter non-GAAP earnings per share by $0.01 to $0.03 per share. For 2013, the acquisition is expected to be accretive to annual earnings per share by $0.12-$0.14. The deal values TMW at roughly 3.5 times annual revenues.

The transaction is subject to normal closing conditions. This includes shareholder approval and anti-trust regulation.

The transaction is expected to close in the fourth quarter of 2012.

Valuation

Trimble Navigation ended the second quarter with $122 million in cash and equivalents. The company operates with almost $700 million in short and long term debt, for a net debt position of roughly $575 million.

For the first six months of 2012, Trimble generated revenues of $1.02 billion. The company net earned $103 million, or $0.82 per diluted share. For the full year of 2012, the company is on track to generate revenues of $2.0 billion. Trimble could earn $200 million, or $1.60 per share.

Valued at $6.2 billion, Trimble is valued at 3.1 times 2012s expected annual revenues. The company is valued at roughly 30 times annual earnings.

Currently, Trimble Navigation does not pay a dividend.

Investment Thesis

Year to date, shares of Trimble Navigation have returned approximately 13%. Shares steadily rose to $55 in March and April, but fell back to lows of $40 in July. In recent week, the share price recovered to almost $50 at the moment.

Over the past five years, shares returned a little over 30%. Revenues rose from $1.3 billion in 2008, to an expected $2.0 billion this year. Earnings are expected to rise from $140 million in 2008, towards $200 million in 2012. The number of shares outstanding remained largely unchanged during that time period.

The acquisition of TMW Systems is a nice addition to Trimble Navigation's operations. Annual revenues are expected to rise 5%, as a result of the acquisition. Furthermore, the company can achieve significant revenue synergies as well as cost synergies. Trimble's pays a fair price, in line with its own revenue multiple, while it is significantly accretive to future earnings.

Trimble Navigation's shareholders navigated shares in a Northern direction over the past two years. Investors are pleased with the significant strategic synergies of the deal, achieved at a fair price.

While I applaud the deal, the current valuation is too high for me. I remain on the sidelines.

Source: Trimble Navigation - Acquisition Of TMW Systems Has Strong Strategic Strength