TeleCommunication Systems Inc. said this week it will buy a California-based maker of wireless navigation software for GPS-enabled cell phones - the third acquisition in the past month for the Annapolis company.
TCS said it would pay $170 million for Networks in Motion, based in Aliso Viejo, Calif., in a purchase amount that included a combination of cash, stock and promissory notes. The sale is expected to close later this month.
Analysts said that TCS got a fair price for Networks in Motion, a company that provides the technological backbone for wireless carriers who want to offer GPS-enabled navigation applications to their cellular customers. Tim Quillen, a research analyst with Stephens Inc. in Little Rock, Ark., said TCS's latest purchase made sense for the company, whose existing business now derives about 25 percent of revenues from location-based services on cell phones.
"This is a complementary acquisition," Quillen said.
The only long-term concern that analysts expressed with TCS' Networks in Motion acquisition involved the looming specter of Google Inc. Google is starting to offer a free turn-by-turn GPS-based navigation system on wireless handsets that run the latest version of its Android operating system. If Google's free product gains traction in the marketplace, it could mean that consumers are less willing to pay $5 to $10 in typical monthly charges for the GPS navigation applications that companies like Networks in Motion offer to customers through the wireless carriers.
Scott P. Sutherland, an analyst with Wedbush Morgan Securities Inc. in Los Angeles, wrote in a research note on the Networks in Motion deal that he had "concerns over the long-term sustainability of paid handset navigation." But ultimately, he thought the consumer market would evolve to leave room for both Google's free, ad-supported navigation product and subscription-based and ad-free products, such as those built by Networks in Motion.
"I think there'll be room for both," Sutherland said in an interview.
A TCS spokeswoman said the company would decline to comment on the latest acquisition until after the deal was final.
TCS doubled its profit in the most recent quarter that ended Sept. 30. It reported net income of $5.4 million, compared with $2.76 million in the same quarter last year. Revenues jumped to $71.6 million in the quarter compared with $56.5 million in the year-earlier quarter.
The other two companies that TCS recently bought are Sidereal Solutions, based in Suwanee, Ga., and Solvern Innovations Inc., of Catonsville.
TCS acquired privately held Sidereal on Nov. 16 for an unspecified amount of cash, 244,000 shares of company stock, and additional money based on Sidereal's gross profit over the next two years. TCS' stock price closed Wednesday at $8.84 and has hovered in the $6 to $10.50 range for the past 52 weeks, making the value of the shares offered in the deal potentially worth more than $1.4 million, according to The Baltimore Sun's calculations.
TCS and Sidereal, a satellite communications and support services company, have worked together on government projects since 2007, TCS said. Sidereal has about 40 employees and about $6 million in revenues per quarter.
On Nov. 3, TCS bought Solvern Innovations for an unspecified amount of cash, 1 million shares of stock and additional proceeds based on Solvern's gross profit over the next two years. Depending on what value TCS assigns the shares it offers to Solvern, the stock portion of the deal could be worth at least $6 million, according to The Baltimore Sun's calculations, which are based on TCS stock's 52-week trading history.
Solvern provides cyber security and technology services to the Department of Defense and the intelligence community. Solvern has 100 employees and its revenue for this year is expected to be about $18 million, TCS said.