The Vitec Group, which owns more than a dozen brands in the broadcast industry said that it has decided to exit its Integrated Microwave Technologies (IMT) business unit, which provides wireless microwave products.
The announcement was made in an investor presentation that accompanied Vitec’s earnings announcement for the first half of 2014.
However, company executives stressed that, until a transaction occurs, it will continue to manufacture, sell, support, and honor the warranty of all IMT products provided to its broadcast customers.
Vitec’s IMT business includes three brands: Nucomm, RF Central, and Microwave Services Company.
Vitec’s IMT business posted a loss of £1.1m during the first half of 2014, compared to a profit of £1.4m for the same period a year ago. IMT’s 1H 2014 revenue was £5.8m, down 35% versus the same period last year.
For the full year 2013, IMT broke even on revenue of £14m, which included a large profitable contract from the US Department of Justice, worth approximately £3.4m.
The company says that the disposal for IMT will allow it to focus its Videocom business on its core broadcast activities.
At that time, Vitec said the deal would immediately enhance its earnings, and that “the acquisition is an excellent fit with Vitec’s Broadcast Systems division. The acquired companies sell to similar customers and Vitec’s infrastructure is expected to provide opportunities for further growth internationally.”
The purchase of Nucomm and RF Central coincided with the start of a huge wave of spending related to the 2.4 Ghz Broadcast Auxiliary Service (BAS) Relocation Project, whereby wireless operator Sprint, in response to a 2004 FCC decision, implemented a program to resolve ongoing interference between public safety and commercial operations in the 800MHz band.
By the time of the project’s official completion in 2010, Sprint had spent about $750 million and broadcasters had moved their ENG and other contribution applications to new compressed digital channels between 2025MHz and 2110MHz. Sprint said more than 1,000 engineers were employed during the project and that as many as 100,000 pieces of microwave and ENG equipment were installed.
The strategy paid off almost immediately for Vitec, which said the following in its full year results for 2007: “RF Systems is performing well, with sales and operating profit in the seven months of Vitec ownership of £23.5 million and £3.3 million respectively. Pro-forma 12-month sales and operating profit for 2007 were £32.2 million and £5.2 million. Both RF Central and Nucomm, have launched well-received ‘High Definition’ products that will maintain our competitive position. 2008 and 2009 results will be buoyed by revenue from the BAS relocation project, which is expected to fall away by 2010.”
Today however, Vitec says that its IMT business is now “relatively small part of our business, which provides wireless microwave products for the Military, Aerospace and Government (MAG) markets.”
Vitec explained the rationale for the decision to exit IMT saying: “We have attempted to grow IMT in an increasingly challenging market that has become overly price driven. This was recently demonstrated by the award of certain large government contracts to competitors at prices where we would not generate positive returns. There are limited synergies between IMT’s MAG business and other activities within the Group.
“As a result, we have decided to exit the IMT business and we are accessing our options of a sale or closure. Our preliminary assessment of the net exit costs based on closing the business is an exceptional one-off pre-tax charge in the region of c.£5.5 million, after foreign exchange recycling, of which c.£5.0 million is anticipated to be a cash outflow. We will provide an update on the exit from IMT in due course.”
In addition to anticipated fall-off in business following the completion of the BAS relocation project, another likely catalyst for Vitec’s decision to sell the IMT business is the strong performance by Teradek, which Vitec acquired in August 2013 for up to $15m.
The chart below, from Vitec’s 1H 2014 earnings call with equity analysts describes the declining sales at IMT and strong growth by Teradek, and announces the company’s intent to divest IMT in order to focus on its core broadcast activities.
According to Vitec’s most recent earnings announcement, “the Teradek business that we acquired in H2 2013 is performing well with strong growth post-acquisition. The business continues to develop innovative products, including the new Bolt wireless transmitter that was released in July 2014 and further product launches are planned for later in the year.”
Based on the success of Teradek during the period, Vitec made a $3.2m “earnout” payment to Teradek’s former shareholders in March 2014. This consisted of $2.4m in cash, and 72,933 new Vitec ordinary shares worth a further $800,000.
Press Release (2007): The Vitec Group Plc Acquisitions of Nucomm and RF Central
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