Posts Tagged ‘Francisco Partners’

Francisco Partners Acquires SintecMedia

Analysis, Broadcast Vendor M&A | Posted by Josh Stinehour
Apr 27 2016

Sintec and FP logo

Francisco Partners has acquired SintecMedia, a well-known provider of broadcast business management software.

Financial details of the transaction were not made public. However, according to Reuters, the deal was valued at approximately $400 million.

Francisco Partners is a technology-focused private equity firm.  Francisco has existing familiarity with the media technology sector having purchased Grass Valley from Technicolor in January 2011 .  Francisco operated Grass Valley for nearly four years before exiting the investment in 2014 with Grass Valley’s sale to Belden.

SintecMedia had been owned by private equity firm Riverwood Capital.  Riverwood acquired SintecMedia in 2010 from existing venture capital investors including Walden Israel and Sequoia Capital.  Riverwood then supported SintecMedia through a series of acquisitions including Argo Systems , StorerTV , and more recently Broadway Systems.  In early 2014 Riverwood provided almost half the financing to support Sintec’s acquisition of competitor Pilat Media in a transaction valued at $103.5 million.

In the press release announcing the transaction, CEO and co-Founder of SintecMedia Amotz Yarden, stated, “Nothing is changing in SintecMedia’s business operations. We will continue to play a pivotal role in the way advertising is bought, sold and managed in the diverse media industry and our customers will continue to receive future-proof technological continuity combined with our innovative aptitude and deep domain expertise. I look forward to many years of exciting growth.”

Matt Spetzler from Francisco Partners added, “We have followed SintecMedia for over six years and are thrilled to back the company and its management team as they continue to consolidate their leading position in helping media companies monetize their assets. The broadcast and media industries are entering a phase of innovation and change and SintecMedia is uniquely positioned to help customers capitalize on this opportunity with a strong market position and new products.”

 

Related Content:

Press Release: Francisco Partners Acquires SintecMedia

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Thorsteinson Replaces Cross as CEO of Quantel and Snell

Analysis, Broadcast technology vendor financials, Broadcast Vendor M&A, Broadcaster Financial Results | Posted by Joe Zaller
Mar 04 2015

Quantel and Snell announced that Tim Thorsteinson has replaced Ray Cross as CEO, effective immediately.news_Tim_Thorsteinson

According to the company, Thorsteinson “is the ideal individual to lead the next stage in the development of the combined Quantel and Snell.”

Cross, who had been CEO of both Quantel and Snell since March 2014, when it was announced that Quantel had acquired fellow UK-based broadcast technology vendor Snell, a deal that had been long-rumored in the industry, since the two companies already had a common parent, Lloyds Development Capital (LDC), the investment arm of Lloyds Bank.

Previously, Cross had been CEO of Quantel since December 2005.

At the time of the Quantel-Snell deal, the company said in a statement that the combined entity had revenue of more than $170 million and office in 16 locations around the globe, making it one of the larger vendors in the broadcast industry.  The company has not provided an update on its performance since that time.

It will be interesting to see what moves Thorsteinson, a longstanding broadcast industry executive, will make as CEO of Snell and Quantel, companies he has competed against in previous roles.

Thorsteinson is a well-known figure in the broadcast industry having headed-up several of the industry’s largest technology vendors over the past 15 years.

In January 2013, Thorsteinson was named CEO of Grass Valley, replacing Alain Andreoli, who had been appointed by private equity firm Francisco Partners following their 2010 acquisition of Grass Valley from Technicolor.

Just over a year later, Thorsteinson oversaw the $220m sale of Grass Valley to Belden Corporation, who combined it with Miranda, keeping the Grass Valley moniker for the enlarged entity.

Interestingly, Thorsteinson was also involved in the sale of Miranda to Belden.  In April 2012, he appointed a director of Miranda Technologies during the time that activist investor JEC Capital was agitating for a sale of that business.  Three months after Thorsteinson became a director of the company, Belden Corporation acquired Miranda for an enterprise value of $356m.

Thorsteinson was the President of Harris Corporation’s Broadcast Communications Division from 2006-2010.  He was appointed to this role following the $460m purchase by Harris of Leitch Technology Corporation, where Thorsteinson had been CEO since November 2003.

Prior to Leitch, Thorsteinson was CEO of Grass Valley Group, and oversaw the December 2001 sale of Grass Valley Group to Thomson Multimedia for $172m.

“We are delighted to have Tim Thorsteinson join Quantel to continue the company’s transformation. Tim has a proven track record of value creation, and his knowledge and experience are a great fit to grow the combined Quantel and Snell business into a major force in the rapidly changing broadcast industry,” said Chris Hurley, Managing Director Lloyds Development Capital and Quantel Board Director. “I would also like to thank Ray for all his hard work and achievements at Quantel over the past 10 years.”

“I’m very excited to be joining Quantel,” said Thorsteinson. “It is one of the larger independent businesses in our industry, with world class products and a rich history of innovation. I want to build on that tradition to create an organization 100% focused on helping our customers prosper in the media technology world.”

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Related Content:

Press Release: Tim Thorsteinson becomes Quantel CEO

Broadcast Vendor M&A: Quantel Acquires Snell

Press Release: Quantel acquires Snell to create new force in media technology

Quantel – Snell FAQ

Belden Makes it Official – Combination of Grass Valley and Miranda to be Called Grass Valley

Broadcast Vendor M&A: Belden Completes Acquisition of Grass Valley, Will Invest $25 Million in Integration of Combined Business

Broadcast Vendor M&A: Belden Buys Grass Valley for $220 Million

Belden Closes Deal to Acquire Miranda

Thorsteinson Appointed to Miranda’s Board of Directors in Otherwise Uneventful AGM

Miranda Nominates Tim Thorsteinson as Director

Activist Shareholder Drama Continues at Miranda Technologies

Technicolor Receives a Binding Offer from Francisco Partners for Grass Valley Broadcast Business

Press Release: Tim Thorsteinson Named President of Harris Corporation’s Broadcast Communications Division

Press Release: Harris Corporation Completes Acquisition of Leitch Technology

WSJ Article: Thomson Multimedia to Buy Grass Valley for $172 Million

Broadcast Vendor M&A: Belden Buys Grass Valley for $220 Million

Belden’s Acquisition of Miranda to Close on or Before July 27, 2012

TVNewsCheck Article (9-29-2011): Tech One-on-One With Simon Derry — Snell Aims To Master the U.S. Market

Advent Venture and LDC close £72m broadcasting merger

Advent Venture Partners and LDC Complete Their Portfolios Merger – March 9, 2009

Video: Pro-Bel and Snell & Wilcox CEOs Discuss Merger (2009)

Press Release (11-6-2003): Chyron Sells Pro-Bel to LDC

Broadcast Magazine (2002): Snell Secures £22m from Advent

Press Release (2002) Advent Venture Partners invests GBP13m in Snell & Wilcox

Variety Article (7-14-2000): Carlton sells tech arm Quantel to LDC for £51 million 

 

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© Devoncroft Partners 2009 – 2015. All Rights Reserved.

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Broadcast Vendor M&A: Belden Completes Acquisition of Grass Valley, Will Invest $25 Million in Integration of Combined Business

Broadcast technology vendor financials, Broadcast Vendor M&A | Posted by Joe Zaller
Apr 01 2014

Belden announced that it has completed the acquisition of the previously announced offer to purchase Grass Valley. When the deal was announced in February 2014, Benden CFO Henk Derksen told equity analysts that the $220m deal would be funded with existing cash.

Grass Valley had approximately $290 million in revenue according to Belden’ press release, so the deal values Grass Valley at 0.75 revenue.

It is believed that the enlarged company will be branded Grass Valley.

According to Belden, the value of the combination of the two companies is clear for both customers and shareholders is clear. The company says that by aligning both resources and strategies, the business will have a broader offering, while realizing the benefits of scale.

Belden also says the combined company “will be able to deliver the ability to simplify the purchasing and management of highly complex infrastructures.”

Belden says acquisition of Grass Valley will be immediately accretive to adjusted earnings per share with an estimated impact of approximately $0.20 in 2014 and $0.50 in 2015.

Much of the increased profitability of the new company is likely to come through synergy savings.

One of the hallmarks and core competencies of the Belden team is the efficient integration of acquired companies into the Belden family, and the associated inculcation with the “Belden Business System, including LEAN enterprise techniques and the Market Delivery System.”

There are many examples of Belden buying underperforming companies and subsequently using its internal processes to achieve strong financial performance and operating return.

Indeed, the company says “there is a significant opportunity in the application of the Belden Business System” in the case of Grass Valley

Derksen told analysts at the time of the announcement that Belden plans “to invest approximately $25 million during the first 12 months of integration largely through restructuring efforts to capture the value of the combined company. The strategic actions will include cost actualization, manufacturing footprint and leveraging a combined sales and marketing function and the implementation of lean principles.”

At same time Belden CEO John Stroup said “the result of the integration is unlikely to include meaningful reductions in R&D investment. However, I think there’s going to be an opportunity for Miranda to throttle back on some investments where Grass Valley’s stronger and for Grass Valley to throttle back on opportunities where Miranda’s stronger. Manufacturing is a clear opportunity. Today, Grass Valley outsources a lot of their manufacturing. We think there’s an opportunity for us to leverage our existing fixed cost structure, absorb that manufacturing. So that’s a clear opportunity to create value in the combined business and there’s clearly an opportunity to leverage our global sales force. Both of us at 200 and 300 million respectively, have created a global sales force calling on the same customers and we see a clear opportunity to improve our efficiency there. So the assumptions that we have in place include manufacturing cost synergies as well as the opportunity to leverage the combined sales organization, both in terms of cost and revenue.”

 

The following slides show the strategic rationale for the Miranda – Grass Valley merger, as explained by Belden in February 2014.

 

Belden Buys Grass - 1

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Belden Buys Grass - 2.

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Belden Buys Grass - 3

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Belden Buys Grass - 4

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Belden Buys Grass - 5

 

 

Given that it is believed that the combined company will be branded as Grass Valley, the deal marks a new beginning rather than the end of the road for the formidable broadcast brand.

Prior to officially becoming part of Belden, what is now Grass Valley has been through a number of strategic changes in the last 10-15 years.

This started in December 2000 when Thomson purchased Philips Professional, which at that time had revenue of approximately 250m Euros, and employed 1,050 people. Philips products, which included cameras, film imaging, signal processing, media networking & control, and systems integration services, became part of Thomson Multimedia.

After the Philips acquisition, the combined company, which was renamed Thomson Multimedia, had combined revenue of approximately 366m Euros.

In 2001, Thomson bought Grass Valley in 2001 for $172m.  At that time, Grass Valley had revenues of about $200m.

Technicolor then went on a buying spree, acquiring multiple companies that were ultimately folded into the Grass Valley brand.

Thomson added to its Grass Valley holdings with the 2005 acquisition Canopus for more than $100m.

By the late 2000s Thomson – which had by this time changed its name to Technicolor – put Grass Valley on the block, initially with what has been described as a very high price tag.

After several rumored bids, and more than a year on the block Technicolor sold what is now Grass Valley to Francisco Partners, a San Francisco – based private equity firm.

Technicolor retained other parts of the business, including transmitters and head-end equipment, and later sold-off these assets in two separate transactions.

Technicolor sold the Grass Valley transmission business to PARTER Capital Group.

The Grass Valley head-end business was sold to FCDE in March 2011.

Grass Valley is one of the industry’s great companies and I am sure that the people there are happy to finally have resolved their fate.  Let’s hope they can now focus on making great products – and of course money for their new owners.

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Related Content:

Press Release: Belden Announces Successful Completion of Grass Valley Acquisition

Broadcast Vendor M&A: Belden Buys Grass Valley for $220 Million

Press Release: Technicolor to sell its Broadcast Services activity to Ericsson

Belden Q3 2012 Revenue Declines 6 Percent, Miranda “Off to a Slow Start”

Broadcast Vendor M&A: Miranda Buys Softel

Belden Closes Deal to Acquire Miranda

More Broadcast Vendor M&A: Belden Buys Miranda for $350 Million in All-Cash Deal

More Broadcast Vendor M&A: Technicolor Closes Deal to Dispose of Grass Valley Transmission Business

Technicolor Receives Binding Offer for Video Head-End Business

Technicolor decides not to sell digital signage provider PRN

Technicolor completes sale of Grass Valley to Francisco Partners

 

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© Devoncroft Partners 2009 – 2014. All Rights Reserved.

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Broadcast Vendor M&A: Belden Buys Grass Valley for $220 Million

broadcast technology market research | Posted by Joe Zaller
Feb 06 2014

Belden has submitted a binding offer to purchase privately held Grass Valley, a leader within the broadcast market, for $220 million.

The binding offer is subject to consultation with Grass Valley’s foreign labor works council, after which we will enter into a definitive agreement. Grass Valley provides innovative technologies including production switchers, cameras, servers, and editing solutions within the mission critical applications of broadcast customers. When combined with Miranda, the resulting end-to-end solution will be the most complete and compelling in the industry.

Grass Valley had approximately $290 million in revenue according to Belden’ press release, so the deal values Grass Valley at 0.75 revenue.

Even so, it’s probably not a bad deal for Grass Valley’s owner, PE firm Francisco Partners, which  purchased Grass Valley from Technicolor in 2011 (closed in January 2011), for no money down, and an $80 million promissory not payable five years from the date of the deal.

Part of Francisco Partner’s deal to buy Grass Valley included an undisclosed additional pay-out if Francisco Partners sold Grass Valley for a partner in the future.  Since these numbers are unknown, it’s difficult to know if the payments were triggered.

“The great thing about this overlap is the limited overlap,” said Belden CEO John Stroup.

“We are extremely excited to have Grass Valley join the Belden family. By combining Grass Valley and Miranda, we will create the broadcast industry’s largest and most complete portfolio,” said Mr. Stroup.

 

Here’s info on the deal and the rationale for it:

 

Belden Buys Grass - 1

Belden Buys Grass - 2

Belden Buys Grass - 3

 

Belden Buys Grass - 4

 

 

Belden Buys Grass - 5


Belden Buys Grass - 6


Related Content:

Press Release: Belden Reports Solid Results in Fourth Quarter 2013 and Announces Binding Offer to Acquire Privately Held Grass Valley for $220 Million

Press Release: Technicolor to sell its Broadcast Services activity to Ericsson

Belden Q3 2012 Revenue Declines 6 Percent, Miranda “Off to a Slow Start”

Broadcast Vendor M&A: Miranda Buys Softel

Belden Closes Deal to Acquire Miranda

More Broadcast Vendor M&A: Belden Buys Miranda for $350 Million in All-Cash Deal

More Broadcast Vendor M&A: Technicolor Closes Deal to Dispose of Grass Valley Transmission Business

Technicolor Receives Binding Offer for Video Head-End Business

Technicolor decides not to sell digital signage provider PRN

Technicolor completes sale of Grass Valley to Francisco Partners

 

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© Devoncroft Partners 2009 – 2014. All Rights Reserved.

Today: NAB 2013 Media Technology: Strategy and Valuation Conference

broadcast technology market research | Posted by Joe Zaller
Apr 07 2013

If you are in Las Vegas to attend the 2013 NAB Show, you don’t want to miss the second annual “Media Technology: Strategy and Valuation,” conference which is being co-produced by Devoncroft, Silverwood Partners and the organizers of the NAB Show.

This event is free for all registered attendees of the 2013 NAB show.

It is being  held in room N239/241 of the Las Vegas Convention Center on Sunday April 7th from 1:45 p.m. to 6:00 p.m.

This year’s conference features an intensive, information-packed series of presentations and panels that discuss the strategic trends and industry-specific factors influencing the value of media technology companies.

We’ve worked hard to put together an outstanding line-up of speakers and presenters, including top technology buyers, leading technology vendor CEOs, and private equity investors who will speak to the opportunities and challenges involved with financing the next phase of technology change in the industry.

The agenda will offer attendees the informed opinions of technology purchasers, industry executives, market research organizations, and financial professionals. The event will serve as a thought-provoking kick-off to the 2013 NAB Show.

This session is intended for senior executives from technology vendors, end-users, and investment firms in the media technology sector.

We are expecting 200+ attendees based on the latest registration numbers, so it’s a good networking opportunity as well.

 

Here’s the conference agenda:

 

1:45 pm – 1:50 pm

WELCOME AND INTRODUCTION

Joe Zaller – President, Devoncroft Partners

 

 

1:50 pm – 2:20 pm

NAB SHOW SPROCKIT PRESENTATIONS

Hear from three market-ready start-ups who have been selected by the NAB’s SPROCKIT initiative.  This session will include an introduction of the SPROCKIT initiative followed by presentations from three of NAB Show’s inaugural SPROCKIT participants.

Presenter(s):

  • Hilary DeCesare, Co-Founder and CEO, Everloop
  • Heidi Messer, Co-Founder & Chairman, Collective[I]
  • John West, Founder & CEO, The Whistle

 

 

2:20 pm – 2:45 pm

THE BROADCAST & MEDIA TECHNOLOGY INDUSTRY IN 2013

Joe Zaller will present a summary of key data derived from the newly published 2013 Big Broadcast Survey (BBS), the largest and most comprehensive study of the broadcast industry. Key results from the 2013 BBS will include key investments areas as well as trends of significance that are impacting these purchasing decisions.

Joe Zaller – President, Devoncroft Partners

 

 

2:45 pm – 3:10 pm

STRATEGIC INDUSTRY ANALYSIS: VALUATIONS, M&A, AND EQUITY FINANCING

Jonathan Hodson-Walker and Joshua Stinehour of Silverwood Partners will present an analysis of strategic industry trends and the specific factors that affect company valuations, including transaction activity and valuations; vendor strategic considerations; and the current M&A environment along with near-term expectations. Attendees will also learn which businesses are buyers and investors targeting and why.

Presenter(s):

  • Jonathan Hodson-Walker  – Managing Partner, Silverwood Partners
  • Joshua Stinehour – Managing Director, Silverwood Partners

 

 

3:10 pm – 3:35 pm

M&A, VALUATION PERSPECTIVES FROM INDUSTRY EXECUTIVES

Joe Zaller will moderate a panel of three recognized executives at leading vendors will offer views on the critical drivers of value (in context of M&A) in the industry, and discuss the best practices they’ve learned on how to review an acquisition opportunity and how to integrate M&A into overall growth strategies. Obstacles to further industry consolidation will also be discussed.

Moderator:

Joe Zaller – President, Devoncroft Partners

 

Panelists:

  • Dan Castle — CEO, Telestream
  • Harris Morris – CEO, Harris Broadcast
  • Denis Suggs — Executive Vice President, Belden

 

 

3:45 pm – 4:00 pm

IABM END-USER RESEARCH OVERVIEW

Yves Dupuis, Director of Market Intelligence at the IABM (trade association that represents broadcast technology suppliers) will present an overview of the latest end-user research from the IABM, including the changing requirements of broadcast technology buyers, and what this means for the supply community.

Yves Dupuis — Director of Market Intelligence, IABM

 

 

4:00 pm – 4:25 pm

THE BROADCAST TECHNOLOGY BUYER PERSPECTIVE

Joe Zaller will guide a discussion with broadcast executives responsible for technology budgets as they ponder the questions of most significance to decisions on technology purchasing: How are savvy broadcasters aligning known technology expenditures against uncertain multi-platform revenue opportunities in order to counteract the ‘consumer-broadcast disconnect’? How are these companies assessing the business risk of technology purchase decisions today given the uncertainty of future business models?

Moderator:

Joe Zaller – President, Devoncroft Partners

 

Panelists:

  • Fred Mattocks – General Manager Media Operations and Technology, Canadian Broadcasting Corporation
  • Steve Plunkett – Chief Technical Officer, Red Bee Media
  • Phil Braden — SVP Technology and Applications, PCCW

 

 

4:25 pm – 4:50 pm

KEYNOTE: TECHNOLOGY CHANGE, BUSINESS CHANGE

Clyde Smith, FOX Networks Engineering and Operations  will offer a broadcast executive’s perspective on the major business issues facing the industry, what major initiatives and projects have been created to solve these issues, a candid assessment of the results of these initiatives, and a discussion of what is still needed from a technology standpoint to address these issues.

Clyde Smith — SVP New Technology, FOX Networks Engineering and Operations

 

 

4:50 pm – 5:15 pm

INVESTOR PERSPECTIVES ON INDUSTRY

Joe Zaller will moderate this panel of private equity professionals who have made recent investments in the media and entertainment space will offer their unique perspectives on trends of significance for the M&E sector. They will also preview their plans for intelligence-gathering at this year’s NAB Show, the trends that are driving investment dollars in the sector, and what characteristics influence their evaluation of an investment opportunity within the M&E industry.

Moderator:

Joe Zaller – President, Devoncroft Partners

 

Panelists:

  • Dave Golob, Francisco Partners
  • Kevan Leggett, Lloyds TSB Development Capital Ltd
  • William Smales, The Carlyle Group
  • Bryce Winkle, The Gores Group

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© Devoncroft Partners. All Rights Reserved.

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Going to NAB? Don’t Miss 2nd Annual “Media Technology: Strategy and Valuation Conference,” A Thought Provoking Kick-Off to the 2013 NAB Show

broadcast industry technology trends, broadcast industry trends, Broadcast technology channel strategy, broadcast technology market research, Broadcast technology vendor financials, Broadcast Vendor Brand Research, Broadcast Vendor M&A, Broadcaster Financial Results, content delivery, technology trends | Posted by Joe Zaller
Apr 02 2013

If you are attending the 2013 NAB show, be sure not to miss the second annual “Media Technology: Strategy and Valuation,” conference which is being co-produced by Devoncroft, Silverwood Partners and the organizers of the NAB Show.

This event is being held in room N239/241 of the Las Vegas Convention Center on Sunday April 7th from 1:45 p.m. to 6:00 p.m., and it’s free for all registered attendees of the 2013 NAB show.

This year’s conference features an intensive, information-packed series of presentations and panels that discuss the strategic trends and industry-specific factors influencing the value of media technology companies.

We’ve worked hard to put together an outstanding line-up of speakers and presenters, including top technology buyers, leading technology vendor CEOs, and private equity investors who will speak to the opportunities and challenges involved with financing the next phase of technology change in the industry.

The agenda will offer attendees the informed opinions of technology purchasers, industry executives, market research organizations, and financial professionals. The event will serve as a thought-provoking kick-off to the 2013 NAB Show.

This session is intended for senior executives from technology vendors, end-users, and investment firms in the media technology sector.

 

Here’s the current lineup of presenters:

 

1:45 pm – 1:50 pm

WELCOME AND INTRODUCTION

Joe Zaller – President, Devoncroft Partners

 

 

1:50 pm – 2:20 pm

NAB SHOW SPROCKIT PRESENTATIONS

Hear from three market-ready start-ups who have been selected by the NAB’s SPROCKIT initiative.  This session will include an introduction of the SPROCKIT initiative followed by presentations from three of NAB Show’s inaugural SPROCKIT participants.

Presenter(s):

  • Hilary DeCesare, Co-Founder and CEO, Everloop
  • Heidi Messer, Co-Founder & Chairman, Collective[I]
  • John West, Founder & CEO, The Whistle

 

 

2:20 pm – 2:45 pm

THE BROADCAST & MEDIA TECHNOLOGY INDUSTRY IN 2013

Joe Zaller will present a summary of key data derived from the newly published 2013 Big Broadcast Survey (BBS), the largest and most comprehensive study of the broadcast industry. Key results from the 2013 BBS will include key investments areas as well as trends of significance that are impacting these purchasing decisions.

Joe Zaller – President, Devoncroft Partners

 

 

2:45 pm – 3:10 pm

STRATEGIC INDUSTRY ANALYSIS: VALUATIONS, M&A, AND EQUITY FINANCING

Jonathan Hodson-Walker and Joshua Stinehour of Silverwood Partners will present an analysis of strategic industry trends and the specific factors that affect company valuations, including transaction activity and valuations; vendor strategic considerations; and the current M&A environment along with near-term expectations. Attendees will also learn which businesses are buyers and investors targeting and why.

Presenter(s):

  • Jonathan Hodson-Walker  – Managing Partner, Silverwood Partners
  • Joshua Stinehour – Managing Director, Silverwood Partners

 

 

3:10 pm – 3:35 pm

M&A, VALUATION PERSPECTIVES FROM INDUSTRY EXECUTIVES

Joe Zaller will moderate a panel of three recognized executives at leading vendors will offer views on the critical drivers of value (in context of M&A) in the industry, and discuss the best practices they’ve learned on how to review an acquisition opportunity and how to integrate M&A into overall growth strategies. Obstacles to further industry consolidation will also be discussed.

Moderator:

Joe Zaller – President, Devoncroft Partners

 

Panelists:

  • Dan Castle — CEO, Telestream
  • Harris Morris – CEO, Harris Broadcast
  • Denis Suggs, Executive Vice President, Belden

 

 

3:45 pm – 4:00 pm

IABM END-USER RESEARCH OVERVIEW

Peter White, Director General IABM will present an overview of the latest end-user research from the IABM, including the changing requirements of broadcast technology buyers, and what this means for the supply community.

Peter White — Director General, IABM

 

 

4:00 pm – 4:25 pm

THE BROADCAST TECHNOLOGY BUYER PERSPECTIVE

Joe Zaller will guide a discussion with broadcast executives responsible for technology budgets as they ponder the questions of most significance to decisions on technology purchasing: How are savvy broadcasters aligning known technology expenditures against uncertain multi-platform revenue opportunities in order to counteract the ‘consumer-broadcast disconnect’? How are these companies assessing the business risk of technology purchase decisions today given the uncertainty of future business models?

Moderator:

Joe Zaller – President, Devoncroft Partners

 

Panelists:

  • Fred Mattocks – General Manager Media Operations and Technology, Canadian Broadcasting Corporation
  • Steve Plunkett – Chief Technical Officer, Red Bee Media
  • Phil Braden — SVP Technology and Applications, PCCW

 

 

4:25 pm – 4:50 pm

KEYNOTE: TECHNOLOGY CHANGE, BUSINESS CHANGE

Clyde Smith, FOX Networks Engineering and Operations  will offer a broadcast executive’s perspective on the major business issues facing the industry, what major initiatives and projects have been created to solve these issues, a candid assessment of the results of these initiatives, and a discussion of what is still needed from a technology standpoint to address these issues.

Clyde Smith — SVP New Technology, FOX Networks Engineering and Operations

 

 

4:50 pm – 5:15 pm

INVESTOR PERSPECTIVES ON INDUSTRY

Joe Zaller will moderate this panel of private equity professionals who have made recent investments in the media and entertainment space will offer their unique perspectives on trends of significance for the M&E sector. They will also preview their plans for intelligence-gathering at this year’s NAB Show, the trends that are driving investment dollars in the sector, and what characteristics influence their evaluation of an investment opportunity within the M&E industry.

Moderator:

Joe Zaller – President, Devoncroft Partners

 

Panelists:

  • Dave Golob, Francisco Partners
  • Kevan Leggett, Lloyds TSB Development Capital Ltd
  • William Smales, The Carlyle Group
  • Bryce Winkle, The Gores Group

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© Devoncroft Partners. All Rights Reserved.

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Impressions of IBC 2012: M&A, Cloud, Multi-Platform, 4K, Efficient Operations, CiaB, and the “Return of Grass Valley”

broadcast industry technology trends, broadcast industry trends, broadcast technology market research, content delivery, market research, technology trends | Posted by Joe Zaller
Sep 20 2012

A previous version of this article appeared in the “Tech Thursday” Spotlight Section of TVNewsCheck

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Against the backdrop of the ongoing European debt crisis and the afterglow of the 2012 Olympics, nearly 51,000 visitors made their way to Amsterdam for the annual IBC trade show. Major themes of the five-day broadcast technology jamboree included vendor consolidation, buzz about new technologies for multi-screen content delivery and social TV, futuristic technology demonstrations, and several important new product introductions.

The broadcast vendor community got a little less fragmented on the first morning of IBC, with a merger announcement by two Norway-based video transport technology providers — Nevion and T-VIPS

Although no additional deals were unveiled at the show, vendor consolidation was one of the most discussed themes at IBC, and according to statements made by some of the leading vendors, there is potentially a lot more consolidation on the way.   

Newly acquired Miranda technologies made its debut as a “Belden brand” at IBC, and Belden EVP Denis Suggs was on hand at the show to meet customers and explain his company’s vision for the broadcast industry, and why they decided to buy Miranda in one of the largest broadcast technology M&A deals in recent years. 

In a nutshell, Belden saw the opportunity to acquire a cash-generating company with a top-class management team that’s growing faster than the overall market and jumped at it. Including Miranda, Belden now generates approximately $450 million a year in broadcast-related revenue, making it one of the industry’s largest players, and it appears they are not done doing deals in this space. 

Suggs said Belden views Miranda as a platform from which is can further expand its broadcast industry operations, and that it intends to support Miranda’s existing plan for further acquisitions.

Grass Valley CEO Alain Andreoli echoed a similar sentiment at his company’s press conference. He said that Francisco Partners, the private equity firm that owns Grass Valley, has a $3 billion fund behind it and will support Grass Valley’s efforts to become an industry consolidators.

When the dust settles, he said, Grass Valley may not be the largest player, but it will certainly be in the top three. Last year, Grass Valley bought PubliTronic, a provider of channel-in-a-box (CiaB) technology, to gain a larger foothold in the playout market. Expect to see Grass Valley and other players making additional strategic moves that help them enter attractive new market spaces.

But most IBC M&A talk centered on Harris Broadcast, which is currently being divested by its parent company. Although rumors were flying at the show about who might buy the division, its executives were tight-lipped. Harris Broadcast President Harris Morris would only say that the deal is progressing according to plan, and is on track to be completed as soon as the end of 2012.

New products and services based on cloud technology, multi-platform content delivery and social TV services dominated many demonstration and hallway conversations at IBC, particularly in the “Connected World” pavilion, where dozens of new and established firms displayed a host of products aimed at securing a place in this emerging ecosystem.

Despite the enthusiasm of vendors, many buyers publicly and privately expressed caution about the technology.

Critics of cloud technology cited immature technology, bandwidth limitations, security, and an unproven business case as barriers to its adoption. Likewise, broadcasters and content owners expressed concern over the “disconnect” between the desire of end-users to receive and consume video content on an ever-increasing number personal devices, and the ability of broadcasters to create sustainable and profitable multi-platform business models.

Cloud-based discussions at IBC ranged from real-world case studies of how EVS helped broadcasters set up private clouds to facilitate remote production of the Euro 2012 soccer championships and London Olympics, to practical solutions from Signiant and Aspera for managing the delivery of file-based content over IP-enabled and cloud-based infrastructure, to new solutions for cloud-based video production.

Cloud-based production is an emerging trend, but initiatives such as the ‘Adobe Anywhere’ initiative will prove to be a catalyst in this area. Taking cloud-based production to the “next level” are new firms like VC-backed start-up A-Frame, which is building from the ground-up a complete cloud-based video production environment that marries the experience of broadcast and post-production experts with forward-thinking IT-based software experts. 

On the multi-screen front, Ericsson introduced its first encoder based on HEVC/H.265 compression technology. The company says that its HEVC implementation offers the potential for users to reduce bandwidth by up to 50%, thereby enabling more efficient delivery of content over multiple platforms, including mobile networks.

Harmonic unveiled a new version of its ProMedia transcoder, aimed at enabling its customers to deliver an integrated multi-screen experience to their subscribers. Harmonic also introduced new members of its senior management team: CMO Peter Alexander, and CTO Krish Padmanabhan, who recently joined the company from Cisco and NetApp, respectively.

Noticeable by their absence on the Harmonic booth at IBC were the familiar Omneon and Rhozet brand names, which have now been absorbed into Harmonic. “Harmonic is a branded house, not a house of brands, and our singular focus is delivering excellent video quality to consumers everywhere,” said Alexander.

The Sony/SES Astra demonstration of live delivery of 4K images over satellite drew a lot of attention.

For many years, 4K images have been trade show “eye candy” for visitors, but at IBC 2012 Sony and SES showed that technology exists today to transmit high quality 4K images over satellite at a manageable 50mbit/s using h.264 compression technology.  The stunning live video images were delivered via an SES satellite to an 84-inch Sony Bravia 4K display.

The demo prompted speculation that 4K will be the “next HD” in terms of consumer adoption and broadcast infrastructure upgrades. Other observers took a more practical approach, saying that the industry might see 4K being used as a high-end production format in near to mid term, but that it will be a long time before broadcasters who have already spent millions on the transition to HDTV decide to upgrade again to 4K.

Indeed, when it comes to broadcast infrastructure upgrades it is operational efficiency, not higher resolution, which appears to be the primary demand of broadcasters. Thus, many vendors at IBC were promoting solutions designed to help broadcasters transition their operations to file-based and IT-oriented workflows. 

One of the ongoing initiatives in this area has been the development by a large number of vendors of integrated IT-based playout technologies, more commonly known as channel-in-a-box (CiaB).  These systems offer the promise of increased operational efficiency and significant cost savings through the integration of previously disparate playout and master control functionality into a single IT-based platform. Over the past several years, major vendors including Grass Valley, Miranda, Snell, Harmonic, and Evertz have offered products.

At IBC 2012, Harris became the latest entrant into the market with the launch of Versio, a CiaB system based on several of the company’s existing technology platforms including the Nexio server family, ADC automation, and Inscriber graphics. 

When describing the new Versio product at the company IBC press conference, Harris Morris said the No. 1 requirement for automated IT-based playout systems is reliability, and that this is an area where Harris Broadcast excels. Morris also emphasized that CiaB platforms rely heavily on automation technology, where Harris Broadcast is an established leader, making the company a natural choice for broadcasters considering integrated IT-based playout.

Although Harris Broadcast touted the fact that their Versio platform is based on the company’s existing technology platforms, it stopped well short of saying that the new system is a direct replacement for its current products, particularly its popular Nexio server family.

Instead the company described Versio as a robust cost-effective way for broadcasters to quickly add new services and digital subchannels channels, and to provide backup in emergencies.

“Channel-in-a-box should be about opening up new possibilities rather than limiting how a broadcaster can operate across multiple on-air scenarios,” said Andrew Warman, senior product manager at Harris Broadcast. “It’s limiting to look at channel-in-a-box as a system replacement for servers, automation, and other play-to-air systems. Broadcasters need freedom to build appropriate workflows for their operations, including external components.”

However, other vendors clearly see the CiaB market differently, and have taken a very different approach than Harris Broadcast, especially those firms that do not have an existing playout server business to protect. 

Snell Chief Architect Neil Maycock said that his company’s ICE platform is not only “ready for prime-time,” it is on the air today delivering high value content for major broadcasters.  Maycock also said that ICE has a unique architecture that enables it to scale from a single channel implementation, through a multi-location centralcasting model, to a large multi-channel playout environment.

PlayBox CEO Vassil Lefterov said he has built his entire business on disrupting the traditional server-based playout market. “We believe our singular focus on this application is a key advantage,” he said.  “Playbox has thousands of live channels on the air today and is working to re-define playout operations for many of our customers.”

Grass Valley, which like Harris has a significant video server business, took a more pragmatic approach.  SVP and CMO Graham Sharp said that “it’s likely CiaB and other IT-based playout systems may ultimately impact everyone’s server business, so we’ve taken the decision to cannibalize our own products where necessary by embracing IT technology, because if we don’t do it to ourselves someone else will.” 

Grass Valley was among the vendors with significant new products. Introductions included a new LDX camera platform that scales from a basic model to a high-end super-slow motion system; a new video server family, and brand new electronics for the Kayenne and Karrera production switchers.  Grass Valley said all its new products feature native 1080p processing, and provide straightforward upgrades via software.

Grass Valley also made bold claims about its future product plans, stating that by 2014 it will have replaced its entire portfolio with all new 1080p, IT-focused products. 

GV’s Sharp also hinted at a major NAB 2013 announcement from Grass Valley: “Next year we will introduce a completely new integrated IP-based platform that is totally format agnostic.” he said.  “We believe this new platform will enable a new way of working that we call non-linear production….”

All Grass Valley products, including those launched at IBC 2012, will be compatible with the new architecture, he said.

Sharp concluded GV press conference by saying: “If there is one take-away from this presentation about Grass Valley, it’s this: We’re back.”

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© Devoncroft Partners. All Rights Reserved.

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Evertz Beats Expectations in Q1 Fiscal 2013 as Profits Jump 41 Percent

Broadcast technology vendor financials, Quarterly Results | Posted by Joe Zaller
Sep 14 2012

Evertz announced that its revenue for the first quarter of its 2013 fiscal year was C$96m, an increase of 28% versus the same period a year ago, and up 26% versus the previous quarter.

Net earnings for the quarter were C$24.8m (C$0.34 per share), up 41% versus the same quarter last year, and up 87% versus the previous quarter.

The results for the quarter were well above the expectations of equity analysts, who on average were looking for revenue of C$84.9m and EPS of C$0.25.

Revenue in the US/Canada region was C$59.4, or 62% of total revenue, up 31% versus the same period a year ago, and up 62% versus the previous quarter.

International revenue was C$36.6m, an increase of 23% versus the same period last year, and down 8% versus the previous quarter. International sales were 38% of total revenue, down from 40% last year.

Evertz EVP Brian Campbell attributed the revenue growth to the ongoing transition to HD, a growing demand globally for high quality video, traction in the company’s workflow solutions from its purchase of Pharos, and several large projects that were recognized during the quarter.

The company had 76 orders in the quarter that were greater than C$200,000, and the top ten customers provided for 41% of revenue (C$39.4m), so Evertz clearly closed some big deals close during the quarter.

Significantly, one customer accounted for 15% of total revenue, or C$14.4m, during the quarter. C$14.4m is a huge order for any broadcast vendor, and this means that the company’s revenue during the quarter was significantly more concentrated than in the past.  For comparison, during the previous quarter no customer accounted for more than 5% of total revenue, or C$3.82m. In response to questions about the “15% customer” from Canacord Genuity analyst Robert Young, Brian Campbell pointed out that the 15% number relates to all product shipped to a single customer during the quarter, not necessarily a single order for one project.  Campbell also said that although this order was indeed large, the company has had large orders in the past.  What appears to make this order unusual is that it appears to have happened during a single quarter as opposed to delivery over multiple quarters, which Campbell said is more common.  Campbell declined to state who the customer was, or its geographic location, but given the rise in US/Canada sales, and the q/q decline in international revenue, it’s easy to speculate.

The strong results follow on from the previous quarter when Evertz announced that its order backlog had reached a record C$57m, and said that most of this backlog would ship during the current quarter. This appears to have happened, as the company’s order backlog at the end of the first quarter of its 2013 fiscal year was C$40m, or 30% lower than three months ago.

Gross margins in the quarter were 58%, up from 57% last year and up from 56% last quarter.  The company attributed its margin expansion in the quarter to higher revenue and traction in new product areas. Company CFO Anthony Gridley said that gross margins were within the company’s targeted range of 56% to 62%, and that the company is “comfortable” with that range.  Campbell added that this margin range allows Evertz to make money while remaining price-competitive in the market.

R&D expenses in the quarter were C$11.8m, an increase of 14% versus the same period last year, and down 8% versus the previous quarter when the company accelerated the purchase of materials and prototypes in order to take advantage of government tax incentives before the end of its fiscal year.  Gridley said the company is constantly adding R&D staff, so any reported decline in R&D spending is typically the result of an increase in prototypes in previous quarters.  Campbell said that the company will continue to invest in R&D as the company sees its engineering strength as a key market differentiator, and Evertz intends to “continue to extend this lead.”

SG&A expenses for the quarter were C$12.4m, an increase of 19% versus last year, and essentially flat with the previous quarter. Selling and administrative expenses represented approximately 13% of revenue in the quarter versus 14% of revenue during the same period last year, and 16% of revenue last quarter.

The company’s purchase order backlog at the end of August 2012 was in excess of C$40m, up 90% versus the same period last year, and down 30% versus the previous quarter.

Commenting on the recent IBC trade show, Campbell said that Evertz saw increasing awareness of some of its recent large R&D investments.  He specifically cited video transport, IT-based playout, asset management, and compressed domain products as areas where the company is seeing interest.

When asked by an analyst about the pick-up in broadcast technology M&A activity such as the recent purchase of Miranda by Belden, and the decision by Harris to divest its broadcast business, Campbell responded by saying that Grass Valley should be added to this list because it is also has been going through changes since being acquired by Francisco Partners.  Campbell implied that the distractions facing competitors was a net positive for Evertz.  “Customers look to Evertz as a very stable entity with very little disruption, so we’ve been able to capture market share” he said.

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Related Content:

Press Release: Evertz Technologies Reports Results for the First Quarter Ended July 31, 2012

Previous Quarter: Evertz Q4 FY 2012 Revenue Rises 11 Percent, Order Backlog at Record Level

Previous Year: Evertz Beats Expectations in Q1 2012 as Domestic Revenue Increases Six Percent

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© Devoncroft Partners. All Rights Reserved.

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Guest Post: Investment Banker Perspective on Sale of Harris Broadcast

broadcast technology market research | Posted by Joe Zaller
May 08 2012

In a recent post called Analyzing the Sale of the Harris Broadcast Division I said I would defer to others on the valuation of and the structure of a transaction for Harris Broadcast. 

In response to this, Josh Stinehour from boutique investment bank Silverwood Partners contacted me and said he has an opinion to offer on the subject. 

So in the first-ever guest post on this site, Stinehour weighs in with his thoughts on the Harris Broadcast deal, including valuation, transaction type, and potential buyers.

Like many observers of the broadcast technology sector, and loyal readers of the Devoncroft blog, I have followed the recent announcements at Harris Corporation with great interest.  The merits of Harris Corporation’s decision to divest its Broadcast Division are well established.  This post is a perspective on the anticipated transaction – timing, type, and price.

Harris in its public messaging has established a few key data points:

  • There is no interest in pursuing a sale of the individual product lines or pieces of the Broadcast Division (Harris Morris’s interview with TVNewsCheck). It is difficult to understate how many vendors were disappointed with this announcement.
  • The expectations is for a price “substantially higher” than $200 million and Harris expects to “divest the business in a sale with cash returning to the company” (Q3 Earnings Conference Call).
  • There has been consistent inbound interest in the division (Harris Morris’s interview with TVNewsCheck, Chris Parson’s interview with Quincy Herald-Whig) – no surprise here.
  • The Company is assuming the transaction closes at the end of 2012 (Q3 Earnings Conference Call).
  • Based on historical SEC filings, the recently provided pro forma analysis (Harris Corp 8K filing), and selected assumptions, the income statement has a revenue and operating income (before corporation overhead) profile approximately as follows:

 

 

 

As the chart above suggests, the sale process will not have the benefit of meaningful revenue growth or a meaningful level of profitability in the Broadcast Division.  That is not to suggest the Broadcast Division is not a valuable asset.  The sale process will have the benefit of an end-to-end suite of products (several are category-leading), a great brand (as confirmed by Devoncroft’s Big Broadcast Survey), a well-regarded management team, and substantial size, presence, and revenue level in the media technology industry.  The caveat to those qualitative points is a portfolio that is much more hardware than software, and Harris Corporation’s self-admission that there is still operational work to do in streamlining the division’s operations (Q2 Earnings Call).

 

 

 

Harris will also have the benefit of a highly accommodating M&A environment, as illustrated in the below slide from our 2012 NAB Industry Analysis.

 

 

Possible Transaction Types:

 

Public Spinout to Harris Shareholders

One possible alternative for Harris is to spin out the Broadcast Division to its shareholders in the form of a stock dividend.  There is precedent for Harris taking this action with a subsidiary.  In January 2007, Harris Microwave Communications Division and Stratex Networks Inc. combined to create a new company having annual revenues of approximately $650 million.  On December 8, 2008 Harris announced it was evaluating strategic alternatives related to this majority-owned subsidiary, Harris Stratex Networks (now Aviat Networks). On March 31, 2009, the Board of Directors of Harris Corporation approved the spin-off to its shareholders of all the shares of Harris Stratex Networks owned by Harris Corporation.   Harris Corporation shareholders received approximately .24 of a share of Harris Stratex Networks for every share of Harris Corporation common stock owned.

This approach allowed the Harris Microwave Communication Division to gain scale, and find a public market with shareholders that were focused on small cap commercial communications growth investments rather than large cap, military communications investments.  A similar logical underpinning would apply in the case of the Broadcast Division. However, the business would need more scale and much more growth for such a strategy to be successful and attract public investors.  This approach would also be time consuming and there may be substantial uncertainty over the upside potential if the business continues to post modest or negative levels of growth and effectively break-even operating results. In sharp contrast, a straightforward sale of the Broadcast Division business for cash allows Harris Corporation to eliminate the distraction and redeploy capital into its core business.

 

Trade Sale to an Industry Participant

You can count on a single hand the number of industry participants capable of financing a greater than $200M cash purchase price.  In each case, it would represent a transformative deal and would require immediate rationalization of the combined organization and cost structure – product overlap would be almost unavoidable.  If such a transaction were successfully executed, the resulting business would have a dominant market position.

 

Trade Sale to a Broader Technology Vendor

Harris is certainly large enough to attract the attention of the comparably much larger IT vendors adjacent to the media technology sector.  For some time, IT vendors have lauded the growth opportunities in video as talking points to Wall Street, and in many instances these same vendors have occupied large booths at NAB and IBC.  However, head of digital media at these vendors is a difficult job to hold through an entire business cycle. 

In this circumstance, the biggest question is whether a broader technology vendor views the Broadcast Division’s portfolio as too hardware-centric and too specialized to the broadcast industry. Conceivably any IT vendor interested in moving into the broadcast sector had the opportunity to make such a decision in connection with the sale process at Grass Valley in 2010, the ongoing sale process at Miranda, or in connection with the evolving situation at other large vendors in the sector.

 

Purchase by a Private Equity Firm

A CapitalIQ screen of private equity firms with a focus in North America, technology, corporate divestitures, and investment criteria in the suggested range yields approximately 2,000 firms – that is not a typo.

There is a tremendous amount of private equity interest in the media technology sector.  The single biggest obstacle these firms have in finding investment opportunities in the sector is a dearth of businesses large enough to support the amount of money these groups are looking to invest. 

Unambiguously there is a private equity buyer for the Broadcast Division.  The challenge is price.  Without the benefit of existing, meaningful historical cash flow or near-term expected cash flows, there is little ability to borrow money to support the purchase price.  Therefore, private equity firms will value the division based on the expectation of near-term efficiencies that can be brought and the expected value of the ultimate exit (generally in a 3-5 year time horizon).  Recall that on a net cash basis, Technicolor provided cash to Francisco Partners at closing in connection with the purchase of Grass Valley. 

 

 

Price

Since 2004, Harris has spent just under $1 billion dollars on acquisitions for the Broadcast Division.  But the market has no memory.

Triangulating between the recent write-downs and the last publicly available balance sheet for the division, it is estimated there is approximately $600 million of assets associated with the division, and more important, the annual revenue is estimated at approximately $530 million.  In the context of those numbers, the level of profitability is insignificant, but critically it is not negative. 

The public comparable companies suggest a revenue multiple of 0.5x to 1.0x.  Recent M&A transactions might suggest a revenue multiple of 1.0 to 1.5.  In the case of the Broadcast Division, the multiples ignore the specifics of the situation; all but a select few industry participants can finance a transaction of the size expected. Private equity firms may have an interest, but they are inescapably bound to pay a price supported by the immediate prospects of cash flow, which price would imply the low end of the suggested multiples. 

In the context of an IT vendor’s balance sheet, a valuation “substantially higher” than $200 million is not a significant amount of money. For that group of buyers, it is a binary question of interest, more than of price. In the past 16 months, by my count, vendors accounting for almost one third of the industry’s revenue have been sold or have actively sought a sale.  With only a few exceptions, the broader technology vendor universe has not participated in those transactions.  The Harris Broadcast Division will make for a great litmus test of the interest in the broadcast technology sector by broader technology vendors: it is big enough to matter to them, spans just about the entire workflow, and comes with a quality and level of video expertise in both the management and engineering ranks that broader IT vendors can not replicate internally.

It will take several months to work through the sale process.  The end result will be a signature event in the industry and will reframe exit expectations for vendors in the sector.

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Related Content:

Analyzing the Sale of the Harris Broadcast Division

Harris Corporation To Divest Broadcast Business

Press Release: Harris Corporation Reports Fiscal 2012 Third Quarter Results

Harris Q3 FY 2012 10-Q Filing

Harris 8-K Filing – Restates Fiscal 2011-12 Revenue on Pro Forma Basis (Without Broadcast and Cyber Integrated Solutions)

Press Release: Harris Corporation Reports Fiscal 2012 Third Quarter Results

Harris Fiscal Q3 2012 Analyst Presentation

Harris Fiscal Q3 2012 Conference Call Transcript

TVNewsCheck Article: Tech’s Big Question: What’s Next For Harris?

Quincy Herald-Whig ArticleProspective buyers seek information on Harris broadcast; business as usual in Quincy

Harris Broadcast Revenue and Income Rise in Q2 2012, Says It’s Laser Focused on Maximizing Shareholder Value.

 

© Devoncroft Partners. All Rights Reserved.

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Analyzing the Sale of the Harris Broadcast Division

Broadcast technology vendor financials, Broadcast Vendor M&A | Posted by Joe Zaller
May 07 2012

After last week’s announcement that Harris Corporation plans to sell its broadcast business, I was contacted by a number of people who wanted more information about Harris Broadcast and the transaction.  Here’s a list of the top questions, along with some thoughts on each one

 

How Big is Harris Broadcast in Terms of Employees and Revenue?

Employees: According to this article in the Quincy Herald-Whig, the Harris Broadcast Communications Division (BCD), has 1,700 employees, including 348 employees at its Quincy Illinois facility.

Revenue: The revenue of Harris Broadcast is somewhat difficult to calculate because Harris BCD is part of Harris Corporation’s Integrated Network Solutions (INS) business unit, which was created last year when Harris Corporation strategically realigned its business segments

Until last week, the last time Harris published data about the broadcast business was more than a year ago (Q2 Fiscal 2011).  However, on the company’s recent Q3 2012 analyst conference call, Harris CFO Gary McArthur disclosed that Harris Broadcast had revenue for the third quarter of fiscal 2012 was $111m, a decline of 14% versus the same period a year ago – thereby also implying that revenue in Fiscal Q3 2011 was $126.5m (interestingly this is a different number than Harris provided last year when it said that Broadcast revenue in Q3 2011 had increased 9% versus Q3 2010, implying Q3 Fiscal 2011 revenue of $134m, but for the purposes of this article, I will stick with the implied $126.5m revenue figure for Q3 2011). Fiscal 2011 Q4 can be calculated from previous earnings announcements.

Also on the Q3 FY 2012 earnings call, Harris revised its guidance for FY 2012.  The company had previously said its revenue for Fiscal 2012 would be approximately $6 Billion. In its Q3 2012 analyst presentation (last page), Harris now says that its FY 2012 revenue excluding Broadcast and Cyber Integrated Solutions (Cyber) operations, (which was also part of the INS Division and was shut down in February 2012) will be $5.45 Billion.  This implies that the company was projecting approximately $555m in revenue from the combination of its broadcast and cyber businesses in 2012.

Harris also recently filed an 8-K with the SEC that enables one to derive more information about the broadcast business.  The 8-K filing restated the performance of Harris’s INS division on a pro-forma basis (excluding Broadcast and Cyber).  By subtracting the pro-forma numbers from previously issued results, it’s possible to approximate the revenue of Harris Broadcast in both 2011 and 2012.

Other regulatory filings show that the revenue from the Harris Cyber business was $11.7m for the first nine months of the current fiscal year.   Thus the revenue of the broadcast business can be calculated as shown below. 

 

 

 

The table above shows that in Fiscal 2011 the Harris broadcast business generated approximately $545m in revenue.  What’s interesting is the company’s huge Q4 2011 performance, which was up 31% over the same period in 2010.

It appears that for the first three quarter of the company’s fiscal 2012, Harris Broadcast revenue is approximately $375m, roughly flat with the first nine months of fiscal 2011.  This begs the question as to whether Harris Broadcast will be able to achieve Q4 FY 2012 results that are strong as their performance a year ago.

According to the article reference earlier, a Harris Broadcast spokesperson said that 56% of the division’s revenue comes from North America.

 

 

What is Harris Broadcast’s Profitability and what is the Impact of Corporate Overhead on Profit?

Given the opaque nature of the broadcast division’s financials, it’s difficult to know its profit levels. The company said that broadcast made a profit in fiscal 2011, but did not offer details.

However, it’s important to keep in mind that Harris Broadcast is part of a $6 Billion defense contractor. As such it undoubtedly has significant corporate overheads allocated to it by the parent company.  While this number is unknown, it likely runs into the millions of dollars.  If these costs are substantial, then they could impact the profitability of the division.  Under a new owner, it’s possible that Harris Broadcast will not be charged these overheads, thereby substantially increasing its underlying profitability. 

 

 

How Much Did Harris Spend The Broadcast Business Together?

For many years, Harris has been a leading provider of radio and television transmitters.  However in 2000 the company went on a buying spree that the company began to transform itself into a multi-product industry giant starting in 2000 with the acquisition of Lout Automation. According to an article in TVNewsCheck, Harris spent $942m on M&A since 2000:

  • Louth Automation in 2000, $85m
  • Encoda Systems in 2004 for $340m
  • Leitch Technologies in 2005 for $450m
  • Aastra Digital Video in 2006 for $35m
  • OSI in 2006 for $32m

 

 

Who Will Buy Harris Broadcast?

This is the number one question people are asking, and I don’t have a clue what the answer will be. 

Harris Broadcast is of a size (see above) that makes it one of the largest pure play broadcast technology vendors.  As such there are not many industry vendors large enough to be able to afford the Harris Broadcast business.  This leave several options including a “strategic” sale to a large IT or media vendor, a private equity deal which leaves the current management in place, or the spinning off of the broadcast business as a separate public company. 

If I had to bet, I would say that the PE option is the most likely, particularly if it is a cash deal.  Harris CEO William Brown implied his preference for a cash deal when he said that Harris will use the first $200m of the proceeds from the sale of the broadcast business to buy back stock, and use the residual balance to fund core activities.

Incidentally, Harris Corporation bought back approximately $800m in stock last year.

 

 

Will Harris Broadcast Be Sold as a Unit or Piecemeal?

It would be pure speculation on my part to hazard a guess at this one, but I’d be remiss if this question was not included on this list.  I am sure Harris is evaluating all the options.

 

 

How Much Will Harris Broadcast Sell For?

This depends on a huge number of factors, and I will defer to others to answer this one.

On the one hand it’s possible that Harris Broadcast sells for a healthy multiple as per the Cisco/NDS and Harmonic/Omneon deals.  On the other hand the valuation may be much lower as per the Francisco Partners / Grass Valley deal. 

One key factor is the expectation of valuation that Harris Corporation has for the broadcast business and how quickly it wants to do a deal.  Although this is not known, the company has provided a few clues in both its statements to analysts, and its regulatory filings.

As stated above on the company’s recent earnings call, Brown said he expects a transaction to occur by the end of calendar 2012.  He went on to say that the first $200m from the sale of the broadcast business would be used to buy back Harris stock.  However, he went on to say that he “fully expects that the proceeds [from the sale of the broadcast business] will be substantially higher than $200m”, although he declined to speculate on a valuation or even a value range.

The company also said it “recorded in the third quarter a non-cash charge of $407m after-tax, or $3.62 per diluted share, to write down a significant portion of the goodwill and other long-lived assets in Broadcast Communications, resulting in the GAAP loss from continuing operations.

In its Q3 FY 2012 10-Q filing with the SEC, Harris Corporation provided useful information about how it calculated the $407m charge, and how it is internally valuing the broadcast business.

The following information is excerpted from the 10-Q:

“Goodwill and other long-lived assets held and used related to Broadcast Communications with a carrying amount of $800.0 million were written down to their preliminary estimate of fair value of $376.0 million, resulting in a preliminary estimate of $424.0 million for a non-cash impairment charge, which was included in income (loss) from continuing operations for the quarter and three quarters ended March 30, 2012. See Note N — Impairment of Goodwill and Other Long-Lived Assets in these Notes for additional information.

 

“Note N — Impairment of Goodwill and Other Long-Lived Assets

“We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Indications of potential impairment of goodwill related to Broadcast Communications (which is part of our Integrated Network Solutions segment) were present at the end of the third quarter of fiscal 2012 resulting from the following circumstances and other factors: (i) an unanticipated revenue decline and operating loss for Broadcast Communications for the third quarter of fiscal 2012 (as a result of weaker demand in North America and longer international sales lead times), which also resulted in a decrease in the fiscal 2012 outlook for Broadcast Communications and (ii) depressed indicators of value resulting from analyses undertaken in the third quarter of fiscal 2012 in connection with the review of our business portfolio, including the evaluation of strategic alternatives for Broadcast Communications that included a potential divestiture of Broadcast Communications and the principal markets currently available. Consequently, in connection with the preparation and review of our financial statements for the third quarter of fiscal 2012, we performed an interim review of Broadcast Communications’ goodwill for impairment as of the end of the third quarter of fiscal 2012. See Note R — Subsequent Event in these Notes for details regarding the approval by our Board of Directors on April 27, 2012 of a plan to divest Broadcast Communications.

“To test for potential impairment of goodwill related to Broadcast Communications, we prepared a preliminary estimate of the fair value of the reporting unit based on a combination of projected discounted cash flows and principal market-based multiples applied to sales and earnings. The current carrying value of the Broadcast Communications reporting unit exceeded its estimated fair value, and accordingly, we preliminarily allocated the estimated fair value to the assets and liabilities of the Broadcast Communications reporting unit to estimate the implied fair value of goodwill.

“In conjunction with the above-described impairment review, we also conducted a review for impairment of other long-lived assets related to Broadcast Communications, including amortizable intangible assets, fixed assets and capitalized software, and impairment of these assets was considered prior to the conclusion of the goodwill impairment review. The estimated fair value of other long-lived assets related to Broadcast Communications was determined based, in part, on an analysis of projected cash flows.

“As a result of these impairment reviews, we concluded that goodwill and other long-lived assets related to Broadcast Communications were impaired as of the end of the third quarter of fiscal 2012 and we recorded an estimated non-cash impairment charge of $424.0 million ($406.5 million after-tax). Due to the length of time necessary to measure the impairment of goodwill and other long-lived assets, our impairment analysis is not complete and is subject to change. We expect to complete our analysis prior to reporting our financial results for the fourth quarter of fiscal 2012 and will record any adjustments to our preliminary estimate at that time. The portion of the estimated impairment charge related to goodwill was $379.0 million and is not deductible for tax purposes. The tax effect of that non-deductibility was treated as a discrete item in the third quarter of fiscal 2012 for purposes of calculating our effective tax rate. We do not expect to make any current or future cash expenditures as a result of the impairment. The estimated impairment does not impact covenant compliance under our credit arrangements, and we do not expect the impairment to impact our ongoing financial performance, although no assurance can be given.”

 

 

Timing – Why Now?

On the company’s conference call with equity analysts, Brown was asked why the broadcast business is being sold now.  Brown said that the divestment of the broadcast business was “Not a new topic with our board, it has been discussed quite frequently over the last several years given where broadcast happens to be… it’s been an active discussion with our board on is it a fit, how do we make it better, what is the timing if we decide to exit… we had a long conversation about it… in our view, given the tough environment that we are facing it’s important for us to focus our resources including our management time and attention on the businesses that we know to be core to our company so we can be successful into FY 2013 and beyond.”

One reason could be Brown himself, who became president & CEO of Harris Corporation in late 2011.   

The current broadcast business was put together under the watch of former CEO Howard Lance who retired last year.  Lance was supportive of the broadcast business so while he was at the helm of Harris Corporation, the structure was unlikely to change.

Brown joined Harris from United Technologies where he was responsible for the company’s global strategic planning and M&A activity.  He’s a deal-maker who has not wasted any time divesting of “non-core” assets, starting with the Cyber Integrated Solutions business, and now broadcast. 

Now that Brown has set up Harris to be more focused on its core defense business, one has to wonder whether he will continue to run the Harris as a defense company, or try to engineer a larger deal that would see Harris Corporation itself sold to a larger defense contractor.

 

 

What Happens to FAME and DooH Initiatives?

Harris Broadcast has for many years sought to leverage its expertise video processing, management, manipulation and storage into market verticals outside of broadcast.  The two most prominent examples of this are the work it does with the military, and its efforts in Digital Signage or “Digital out of Home” (DooH).

For military markets, Harris has long touted its FAME (Full-Motion Video Asset Management Engine) initiative, which seeks to use broadcast technology to capture, manage, analyze and store the vast amounts of video-based content that are now being created in military operations.  Harris has never revealed the extent to which this initiative has gained traction with customers.  However it seems logical that if Harris Broadcast is spun off, the contacts (and contracts) that Harris Corporation have with government customers will live on.  On the other hand it’s also possible that a more focused owner may devote fewer resources to this area in favor of initiatives that are more core to the broadcast industry.

Harris has also very active in the digital signage business, and has had good success with clients including 7-Eleven, Harrods, McDonalds, the Orlando Magic, and Madison Square Garden. Some of these  contracts (especially in the sports market) have undoubtedly resulted in the sale of a lot of Harris Broadcast gear including signal processing and storage products.  The retail-focused projects are more about the digital signage solution than the sell through of broadcast technology.  Thus the issue for DooH markets is similar to the Harris FAME initiative – the contracts will live on, but it’s possible that a new owner may shift resources away from these areas in favor of a more focused approach to the broadcast market.

 

 

Branding — What Happens to the Harris Name?

Harris is one of the biggest names in the broadcast industry, but if its broadcast division is sold off to a PE firm, or is somehow spun out as a separate company, it may have only limited rights to the Harris name.  So depending on the outcome of the sale process, branding could become a major issue for the firm.

So how strong is the Harris brand? As part of our annual Big Broadcast Survey (BBS) study of the broadcast market, we have measured the brand values of Harris Broadcast for the past four years, so we are in a good position to know. 

The 2012 BBS uses a broad variety of metrics to benchmarks how buyers of broadcast technology perceive the strengths and weaknesses of more than 100 broadcast technology brands.  The Harris Broadcast brand is regarded very highly throughout the broadcast industry, and appears to have increased in several key areas over the past twelve months. 

For evidence of the its standing in the market, one only has to look at various broadcast industry message boards to see the outpouring of affection for the Harris broadcast brand. 

 

So what are your thoughts?  There are certain to be many more questions about this deal.  It will be very interesting to watch.

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Related Content:

Harris Corporation To Divest Broadcast Business

Press Release: Harris Corporation Reports Fiscal 2012 Third Quarter Results

Harris Q3 FY 2012 10-Q Filing

Harris 8-K Filing – Restates Fiscal 2011-12 Revenue on Pro Forma Basis (Without Broadcast and Cyber Integrated Solutions)

Press Release: Harris Corporation Reports Fiscal 2012 Third Quarter Results

Harris Fiscal Q3 2012 Analyst Presentation

Harris Fiscal Q3 2012 Conference Call Transcript

TVNewsCheck Article: Tech’s Big Question: What’s Next For Harris?

Quincy Herald-Whig Article: Prospective buyers seek information on Harris broadcast; business as usual in Quincy

Harris Broadcast Revenue and Income Rise in Q2 2012, Says It’s Laser Focused on Maximizing Shareholder Value.

Harris Corporation Shuts Down Cyber Integrated Solutions Business

Harris Corporation Strategically Realigns Business Segments; Broadcast Communications Rolled into New “Integrated Network Solutions” Unit

Harris Corporation Names New President and CEO

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