Tomtom’s Initial Public Offering: Dud or Nugget? Harvard Case Solution & Analysis

IMD-1-0273 © 2009
Leleux, Benoit F.; Samushonga, Kudzanai

April 2005. Klaas van der Mullen was a bit dumbfounded. He had consistently place a lot of confidence in the investment banks’ views about the technology businesses in which he was interested in investing. In essence, the author of the report virtually admitted that he had no clue what the company was really worth – not a very comforting thought. The fund’s core strategy for outperforming its benchmark index was to invest selectively in the initial public offerings (IPOs) of high-potential businesses. This buy-and-hold approach, commonly with investment horizons of five to seven years, had proven quite successful over time. But, the IPO in front of him appeared to defy all conventional valuation approaches. TomTom, a Dutch electronics company, had taken the European navigation marketplace by storm with a

Collection of recently launched commercial satellite navigation apparatus, also known as global positioning systems (GPSs). TomTom pioneered the notion of the fully integrated, hand-held GPS, ready to use out of the carton. With its ease of use, TomTom appreciably enriched the feeling of protection in foreign cities as well as the driving experience; GPS were effectively brought by it to the masses, and worldwide approval was eased by its particular approach.

The global market, which stood at some €800 million in 2004, was set to grow to €5 billion by 2010. With a 23% worldwide market share, TomTom held a commanding lead in this exciting marketplace. The pending IPO would eventually offer a chance to capitalize on TomTom. But was the initial offering price proper? Klaas was perplexed by the extreme range of the valuation provided by his favourite analyst at Fortis Bank: It valued the company from €1.8 billion to €3.1 billion. Klaas decided he would need to really go through the

Tomtom’s Initial Public Offering Dud or Nugget Case Study Solution

Before deciding whether to put money into the IPO, whole valuation exercise by himself. Learning objectives: Understanding the sensitivity of discounted cash flow valuations to the trouble to build credible assumptions when coping with new products in new markets, and also premises used. Using simulations to check the impact of various assumptions on the value of shares for listed companies. Comprehend the strategic relationships between GPS devices and map suppliers. 

Subjects: Valuation; Discounted cash flow; Forecasting; Assumptions; Sensitivty analysis; Pricing policies; Price erosion; Consumer electronics
Settings: Netherland; Europe; Global; Personal Navigation Devices (GPS); €200 million in sales; 2005

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