$700 million gorilla?

Another company in our industry that has tons of potential but little in the way of discernible results got sold for a huge amount yesterday. Hughes Telematics got bought by a public company called Polaris in a deal that values the combined companies at $700 million. Here's the thing: Polaris didn't have any business until doing this deal. They were a so-called "blank cheque" company -- they went public with the promise to build a company and are now using the proceeds of the offering and the stock to buy Hughes. Here's a good story on Forbes website that explains the transaction.

Don't get me wrong, Hughes has some business from the Networkcar business, and has indicated that it has contracts with Chrysler and Mercedes-Benz. A dig into its SEC filings shows them estimating $43 million in revenues this year and doubling up to $86 million in 2009. They are forecasting about 1.8 million installed units in Chrysler and Benz vehicles next year. Here's the real thing: They don't expect to be cash-flow positive until mid-2010 when sales have reached an estimate $250-300 million. That's a quarter-billion dollars before they generate positive cash from operations. Yikes.

Only time will tell if a $700 million valuation is justified. The more relevant question is, "What does this mean to Guidepoint?" Today, not much. We have built our business as a flexible enterprise that sells into multiple channels. The dealer business, which is where we started in 2002, is absolutely an important part of the mix today, but it's not the ONLY part like it was a few years ago. We've expanded into new channels like powersports and fleet, and are working on initiatives to conquer other channels in the coming year. More importantly, we need to keep working on the "little things" like customer service, making dealers happy and creating profit opportunities for everyone in the chain to ensure that some $700 million gorilla doesn't come and squash us in the future.