Trimble announced last week that it has entered into a definitive agreement to acquire @Road, Inc.of Fremont, Calif. Under the terms of the transaction, Trimble will acquire all of the outstanding shares of @Road for $7.50 per share. @Road shareholders will receive $5.00 per share in cash and the remaining $2.50 per share in consideration will be a mixture of cash and/or Trimble stock to be determined at Trimble’s sole discretion.
The transaction equity value is approximately $496 million. After subtracting @Road’s net cash position of approximately $79 million, the transaction enterprise value is $417 million. The transaction will be accounted for as a purchase.
Strategic Rationale
— Enables Mobile Resource Management (MRM) Leadership: The acquisition expands Trimble’s investment and reinforces the existing growth strategy for its Mobile Solutions (TMS) segment. It also positions Trimble as a market leader in providing MRM solutions. In addition to its industry-leading technology, @Road has developed deep domain expertise and a strong field service management capability within its MRM solution set to address challenges faced by a variety of industries, including transportation, distribution, telecommunications, cable, field service, utilities, facilities management and public works. This complements Trimble’s existing domain expertise in the construction supply, direct store delivery, public safety and utilities industries.
— Increases Access to Fast Growing, Global MRM Segment: According to Frost and Sullivan, the emerging MRM segment is expected to grow to approximately $2.6 billion by 2010, up from approximately $1.2 billion in 2006. With the acquisition of @Road, Trimble is well positioned to capitalize on this growing, global market opportunity.
— Reinforces Trimble’s Existing Businesses: A number of Trimble’s existing businesses have the potential to add software products based on a recurring service model. The combination of @Road and Trimble will enable more aggressive development of these categories of products and can leverage Trimble’s existing capabilities and presence in those markets.
— Extends Trimble’s Technology Platform: @Road has made significant investments in world-class, fault tolerant and scalable software infrastructure that can support a large increase in subscribers with minimal additional investment. This enables Trimble to forego a similar investment and rapidly deploy new applications to serve additional customers.
— Accelerates the Pace of Product Innovation for Customers: The combination of @Road’s industry-leading MRM solutions with Trimble’s capabilities will both speed the rate at which new products will be brought to market and will increase the diversity of those products.
— Enhances Customer Access through Strong Channel Relationships: Trimble is well positioned to leverage @Road’s extensive network of well-established relationships with telecom carrier partners, large system integrators, and enterprise software technology providers to enhance the combined company’s reach, product capabilities and solutions platform. In addition, Trimble’s significant existing international presence will enable an accelerated international expansion for the combined business.
Significant operating leverage is available to the combined entity. The sources of leverage include the ability to reduce costs by sharing common infrastructure elements and to achieve growth objectives by leveraging existing capabilities at little incremental cost. Examples include the consolidation of data centers, the consolidation of product platforms, leveraging sales force and distribution channels, the utilization of Trimble’s international infrastructure and the reduction of public company compliance costs.
"@Road is widely recognized for its strong technology base and its success with enterprise customers. The addition of @Road to Trimble’s existing TMS product offerings will enable us to provide a broader and more robust platform," said Steven W. Berglund, president and CEO of Trimble. "The anticipated growth rates for MRM make this combination an attractive addition to the Trimble portfolio. It reinforces our other successful investments within TMS and represents a major step in building leadership in MRM. We look forward to the addition of the @Road team as we continue to grow and build shareholder value."
"We are pleased to join Trimble and it is an excellent fit for @Road," said Krish Panu, president and CEO of @Road. "Our goal has always been to provide the best MRM solution, from product design to our ongoing customer support. Trimble shares this vision of excellence. We believe the acquisition will enable even better customer service, while enabling our employees worldwide to continue to provide leadership in our markets."
Financial Structure and Transaction Timing
Of the $7.50 per share of consideration, @Road shareholders will receive $5.00 per share in cash. For the remaining $2.50 per share portion of the consideration, Trimble will make a determination about the mixture of cash and stock consideration before the @Road shareholder vote date. The closing of the transaction, which is expected during the first quarter of 2007 after the @Road shareholder vote, will be subject to regulatory approval and other usual conditions. The transaction is not subject to a Trimble shareholder vote.
Trimble expects to finance the cash portion of the transaction from cash on its balance sheet, available borrowings under its existing bank credit facility and a new term loan.
Krish Panu, each of the other executive officers and directors of @Road and @Road’s largest stockholder, representing an aggregate of approximately 23 percent of the outstanding shares of @Road’s common stock, have agreed to vote in favor of the transaction.
@Road will be reported within Trimble’s Mobile Solutions (TMS) business segment.
Goldman, Sachs & Co. acted as the financial advisor to Trimble and J.P. Morgan Securities Inc. acted as financial advisor to @Road.
Preliminary 2007 Pro Forma Outlook
Assuming a February close of the transaction, Trimble currently expects total 2007 Company revenue between $1,140 and $1,170 million. Of this amount, approximately $80 million to $85 million in revenue is expected to come from the acquisition of @Road. The expected revenue contribution from @Road in 2007 is expected to be significantly impacted by the write-off of all deferred revenue of approximately $28 million at closing and the partial year impact of a February close.
Trimble expects full-year 2007 non-GAAP earnings per share of between $2.10 and $2.15 in 2007. Trimble’s baseline outlook for the Company, excluding the acquisition, would have been $2.30 and $2.35 non-GAAP earnings per share. The transaction is expected to be single-digit dilutive in 2007 due to interest payments on debt, an assumed higher share count and the deferred revenue write down of $0.07 per share, partially offset by synergy savings and improved business profitability. Beyond 2007, the transaction is expected to be accretive to non-GAAP earnings per share in 2008 and is expected to be meaningfully accretive to non-GAAP earnings per share in 2009 and beyond.
Trimble will update its fiscal 2007 guidance on the Company’s regularly scheduled quarterly conference call on January 25, 2007.
About Mobile Resource Management—A Growing Industry
Mobile Resource Management (MRM) business solutions are designed to maximize the productivity of mobile workforces. Next-generation solutions are expected to include more than just fleet and asset management tools. Growth in the industry is expected to be fueled by combining Internet services with on-demand applications that leverage a variety of technologies including Global Positioning System (GPS), dispatch software, wireless communications, fleet management tools and transaction processes to help companies reduce operating costs and more effectively manage a mobile workforce.
The ability to track, locate, and manage assets can be critical to a company’s overall performance and bottom line. By reducing costs through fewer lost assets, enhanced equipment utilization, reduced out-of-route miles, and ‘just-in-time’ inventory availability, MRM is expected to transition from a premium service to a standard component of most businesses with fleets and multiple assets.
