Posts Tagged ‘The Gores Group’

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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Harris Corp Completes Sale of Broadcast Business to The Gores Group

Broadcast Vendor M&A, SEC Filings | Posted by Joe Zaller
Feb 04 2013

Harris Corporation has completed the sale of its Broadcast Communications Division (Harris BCD) to The Gores Group, a Los Angeles based private equity firm.

Contractual details of the Asset Sale Agreement between Harris and The Gores Group can be viewed here.

The completion of the deal means that Harris Corp is now officially out of the broadcast business, after 50+ year run as one of the broadcast industry’s most significant technology vendors.  However, it appears that, for now at least, BCD will continue to be called Harris Broadcast.

Harris Morris, CEO of Harris Broadcast said “This is an exciting new chapter for Harris Broadcast, our employees and our customers. The Gores Group is an ideal fit to help us move the business forward and help drive innovation, streamline operations and improve customer service. They will also provide us additional resources such as a flexible capital base and introduce new talent to the Company.”

Carl Vogel, a veteran of the cable television and satellite industry, is a senior advisor to The Gores Group and will be a member of the Gores team providing advice and strategic guidance to the Company.

Ryan Wald, Managing Director of The Gores Group added, “We anticipate great things from Harris Broadcast. The Company has proven technology, great products and an outstanding team. With our equity capital and guidance we are confident that Harris Broadcast will transition to a strong independent company that will continue to develop and deliver market leading technology and service to its customers.”

The headline valuation of the deal was $225m, comprised of “$160m in cash, a $15m subordinated promissory note and an earnout of up to $50m based on future performance.”  According to a Harris 8-K filing with the SEC, the terms of the earnout state that in each of the four calendar years from 2013 through 2016, Harris Corporation will receive a contingent payment (in cash) of twenty percent of the revenue of Harris BCD that is in excess of a specified target revenue amount. The target revenue amount required to trigger the contingency payment to Harris Corporation was not specified, so it is difficult to judge how likely it is that the payment will be triggered. This contingent payment amount is subject to an annual cap of $25m in each calendar year (2013 – 2016).

The price paid by Gores for BCD is lower than what Harris executives previously indicated they hoped to achieve.  As a result, Harris Corp recently recorded a non-cash impairment charge of $98m relating to the sale of BCD. This is fourth time the company has written down the value of BCD during the sale process.

Following the most recent write-down of BCD’s book value, the company was contacted by SEC staff regarding the timing of the impairment charges relating to BCD. According to a filing with securities regulators, Harris provided the SEC with the following explanation:

“As of our June 29, 2012 year-end, we wrote down the carrying value of Broadcast Communications (“BCD”) to $461 million, which represented the lower of carrying value ($461 million) or estimated fair value of $490 million less estimated costs to sell of $26.5 million (or $463.5 million). With the assistance of a third-party valuation consultant, we estimated the fair value at that time to be $490 million based on discounted cash flow analysis and an analysis of sale transactions and public company market multiples for companies in markets similar to BCD. This analysis yielded estimated fair values ranging from $487 to $496 million, and included assumptions that reflected expected conditions in the markets BCD operates in. Our analysis was corroborated by a valuation summary prepared by the investment banker we engaged to assist with the sale of BCD and preliminary indications of value from potential purchasers of BCD which we received in early August 2012. Accordingly, we believe the net assets of BCD were appropriately valued at June 29, 2012.

“Unexpected changes in facts and circumstances caused us to conclude impairment indicators were present relative to BCD at the conclusion of our first fiscal quarter ended September 28, 2012. As a result of weaker than expected market conditions and general uncertainty in the market surrounding the BCD sale process, BCD unexpectedly reported lower than forecasted revenue, operating income and cash flows for the first quarter of fiscal 2013. BCD’s lower first quarter results and a lower confidence level in BCD’s ability to meet future financial forecasts resulted in lower preliminary bids from interested parties received during the last week of October ranging from $175 to $310 million. Further, we updated our discounted cash flow analysis as of September 28, 2012 by adjusting our assumptions of expected revenues, operating income and cash flows. Specifically, we reduced our revenue projections, increased projected working capital requirements and applied higher discount rates to reflect greater uncertainty surrounding BCD’s current and future expected financial results. As a result of the lower preliminary bids, our updated discounted cash flow analysis and a revised valuation summary prepared by our investment banker, we reduced the carrying value of BCD as of September 28, 2012 to $287.2 million (estimated fair value of $300 million, less estimated selling costs of $12.8 million), resulting in a non-cash impairment charge of $216.5 million.”

 

Recent Performance of Harris BCD

According to a recent 10-Q filing with the SEC, Harris said its discontinued operations, the vast majority of which relate to BCD performed as follows:

 

 Results of Harris Discontinued Operations Through Fiscal Q2 2013

 

Looking to the Future of Harris Broadcast

Now under new ownership, Harris Broadcast remains one of the largest vendors in the broadcast technology space.  The completion of deal means the company can now put behind it the uncertainty that has surrounded it since Harris Corp announced its intention to divest the business. As an independent company Harris Broadcast can now focus entirely on its core business and execute its strategy for growth and profitability.  It will be interesting to watch the actions the company takes between now and the 2013 NAB Show, which will be the first major public appearance of the new company.

 

 

Related Content:

Harris Corp Press Release: Harris Corporation Completes Sale of its Broadcast Communications Business to The Gores Group

Gores Group Press Release: The Gores Group Completes Acquisition of Harris Broadcast Communications

Harris Corp 10-Q Filing for the Quarterly Period Ended December 28, 2012

ASSET SALE AGREEMENT by and between HARRIS CORPORATION and GORES BROADCAST SOLUTIONS, INC. Dated as of December 5, 2012

Harris Corporation — Correspondence with SEC Regarding Write-Down of the Value of Harris BCD

Harris Corp Reports Q2 2013 Earnings, Writes Down Value of Broadcast Business by Additional $98 Million, Expects BCD Sale to Close in February

Harris Corporation Discloses Structure of Promissory Note and Earnout Provision in Sale of Broadcast Communications Division

Harris Corporation to Sell Broadcast Business to The Gores Group for $225 Million

Harris Corp Announces Q1 FY 2013 Results, Further Writes Down Value of Broadcast Business

Harris Corporation To Divest Broadcast Business

Analyzing the Sale of the Harris Broadcast Division

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© Devoncroft Partners. All Rights Reserved.

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Harris Corp Reports Q2 2013 Earnings, Writes Down Value of Broadcast Business by Additional $98 Million, Expects BCD Sale to Close in February

Broadcast technology vendor financials, Broadcast Vendor M&A, Quarterly Results, SEC Filings | Posted by Joe Zaller
Jan 29 2013

Against a backdrop of what CEO William Brown called a “very difficult and uncertain government spending environment,” Harris Corporation announced that its revenue in the second quarter of fiscal 2013 was $1.29Bn compared with $1.31Bn during the same period a year ago.

GAAP income from continuing operations was $142m, or $1.25 per diluted share, compared with $136m, or $1.18 per diluted share.

Harris had little to say about its Broadcast Communications Division (BCD) other than the fact that it has “entered into a definitive asset sale agreement with Gores Broadcast Solutions, Inc., an affiliate of The Gores Group, LLC, relating to the sale of Broadcast Communications.”

The company also disclosed that it recorded a non-cash impairment charge of $98m relating to the sale of BCD.

Harris has written down the value of BCD on three previous occasions. The most recent write-down was in October 2012 when the company said that based on “recent indicators of value during the first quarter of fiscal 2013, including market, financial performance and indications of value from interested parties,” it had recorded non-cash impairment charges in discontinued operations totaling $222m. Harris said that the “vast majority” of this write-down was related to BCD, with only about $6m attributed to the company’s Cyber Integrated Solutions business, which was also discontinued in 2012.

At that time, Brown said that as a result of this charge, Harris had put a net book value of $287m on Harris BCD, which he said provided an “indication of the value we expect to receive” from the sale of the broadcast business.

When Harris announced the deal to sell its broadcast business to PE firm the Gores Group in December 2012, the company put a headline value of $225m on the transaction, or $62m lower than the value Brown had telegraphed to the market two months earlier.

However, through the BCD sale press release and a subsequent regulatory filing with the SEC, Harris disclosed that the terms of its deal with the Gores Group was made up of “a cash payment of $160m, a $15m subordinated promissory note (payable 15 months after closing), and an earnout of up to $50m based on future performance.”

Today’s disclosure that Harris has recorded an additional $98m impairment charge against the value of BCD, means the broadcast business is now valued on its books at $189m. This implies that after receiving the $160m cash payment, and the payment of the $15m promissory note ($16.125m with interest), Harris is not being overly optimistic that it will receive the full potential value of the earnout provision.

Nevertheless, Harris CFO Gary McArthur told analysts that the company “continues[s] to plan to purchase an additional $200 million in shares upon the successful conclusion of the broadcast sale,” something that both McArthur and Brown have reiterated since announcing the intent to divest BCD in May 2012.

McArthur also said that the company expects to close the sale of BCD in early February 2013, thereby ending the company’s 50+ year run as one of the broadcast industry’s most significant technology vendors.

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Related Content:

Press Release: Harris Corporation Reports Fiscal 2013 Second Quarter Results

Harris Corporation Discloses Structure of Promissory Note and Earnout Provision in Sale of Broadcast Communications Division

Harris Corporation to Sell Broadcast Business to The Gores Group for $225 Million

Harris Corp Announces Q1 FY 2013 Results, Further Writes Down Value of Broadcast Business

Harris Corporation To Divest Broadcast Business

Analyzing the Sale of the Harris Broadcast Division

Harris Corporation Shuts Down Cyber Integrated Solutions Business

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© Devoncroft Partners. All Rights Reserved.

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Harris Corporation Discloses Structure of Promissory Note and Earnout Provision in Sale of Broadcast Communications Division

Broadcast Vendor M&A, SEC Filings | Posted by Joe Zaller
Dec 06 2012

When Harris Corporation announced earlier today that it had signed an agreement to sell its Broadcast Communications Division (Harris BCD) to The Gores Group (TGG), the company said that the terms of the deal included “a cash payment of $160m, a $15m subordinated promissory note, and an earnout of up to $50m based on future performance.”

Harris Corp subsequently issued a regulatory filing that provides more detail on the promissory note and the terms of the earnout.

The $15m subordinated promissory note is payable fifteen months after closing, accrues simple annual interest at six percent, and is unsecured.

The terms of the earnout state that in each of the four calendar years from 2013 through 2016, Harris Corporation will receive a contingent payment (in cash) of twenty percent of the revenue of Harris BCD that is in excess of a specified target revenue amount.

The target revenue amount required to trigger the contingency payment to Harris Corporation was not specified, so it is difficult to judge how likely it is that the payment will be triggered.

This contingent payment amount is subject to an annual cap of $25m in each calendar year (2013 – 2016).

In the event that Harris BCD’s revenue would have caused the contingent payment in any such year to exceed $25m, the contingency payment will be carried forward and credited as revenue in the next year.

The total value of the contingency payment cannot exceed $50m over the period of the agreement.

Harris said that the target amount required to trigger the contingency payment could be lowered in the event of a sale or divestiture by TGG of parts of Harris BCD including a business unit, product line or substantial portion of its consolidated assets.

These provisions are not uncommon in M&A deals.  Indeed when Technicolor sold Grass Valley to Francisco Partners in 2010, a similar arrangement was put in place.

Under the terms of the Technicolor deal with Francisco Partners:

  • An $80m promissory note was issued to Technicolor with a six-year maturity and bearing a capitalized interest of 5% per year
  • Technicolor has the right to receive “additional consideration from [Francisco Partners] based on the potential future remuneration of the new owners of the disposed entity.”  However the amount of remuneration was not disclosed.

 

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Related Content:

Harris Corporation to Sell Broadcast Business to The Gores Group for $225 Million

Harris Press Release: Harris Corporation to Sell Broadcast Communications to The Gores Group for $225 Million

Harris Corporation 8-K Filing

 

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© Devoncroft Partners. All Rights Reserved.

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Harris Corporation to Sell Broadcast Business to The Gores Group for $225 Million

Broadcast Vendor M&A | Posted by Joe Zaller
Dec 06 2012

Harris Corporation said today that it has signed an agreement to sell its Broadcast Communications Division (Harris BCD) to The Gores Group (TGG), a Los Angeles-based private equity firm, for $225m.

Under the terms of the deal, The Gores Group will pay $160m in cash a $15m subordinated promissory note and an earnout of up to $50m based on future performance. The deal is expected to close in early calendar year 2013.

The deal price is  below the $287m valuation that Harris Corp recently said it had on its books for BCD following three successive write-downs of BCD.

“The sale of Broadcast Communications reflects our strategy to optimize our business portfolio and focus on our core businesses,” said Harris Corporation CEO William Brown.

The upfront cash portion of the deal is below the amount that Brown had previously telegraphed to the market.  When the sale of BCD was announced in May 2012, Brown said that he expected to receive “substantially more” than $200m for BCD, and that the company would the first $200m from the sale of BCD to shareholders, and use the residual to invest in the company’s core defense business.

Brown addressed this in a statement, saying “As previously communicated, we plan to repurchase up to $200 million of our shares after the deal closes. This is in addition to the $200 million of share repurchases already planned for fiscal 2013 and reflects our ongoing commitment to effectively deploy capital, including returning cash to shareholders.”

According to its website, The Gores Group has $3.3 billion in assets under management and “specializes in acquiring businesses that are undergoing change in capital structure, strategy, operations or growth and can benefit from Gores’ operational and strategic approach.” TGG says it “targets companies with a defensible core business, mature products or services, sustainable revenues, established customer relationships, and that have reached a transition point in their lifecycle presenting an opportunity for transformation.”

“In Harris Broadcast Communications, we are investing in a proven technology leader with great products and a great team. We are excited to provide the capital and support to transition this division to a strong and independent company further enabling it to continue developing and delivering market leading technologies to its customers,” said Ryan Wald, Managing Director of The Gores Group.

The announcement did not disclose whether current management would remain in place, or for how long Harris BCD will continue to have the right to use the Harris name.  However Wald’s statement that TGG is investing in a great team implies current Harris BCD president Harris Morris is likely to remain at the helm of the company.

The announcement comes after months of intense rumor and speculation, which began in May 2012 when Harris Corporation announced its intention to divest its broadcast business, saying BCD was no longer considered a core asset to the defense contractor’s overall business.

At that time, Harris Corporation CEO William Brown summed up the company’s reasons for wanting to sell-off BCD: “The combination of a lack of effective integration by the company over the last decade, coupled with a market outlook that is not as promising today as once believed led us to believe that the business is best owned by another party.

The structure of Harris BCD today is the result of a decade-long M&A program, which transformed the company from a leading provider of radio and television transmitters into one of the largest pure-play broadcast technology vendors. According to a TVNewsCheck article, Harris spent close to $1 Billion on M&A since 2000, including the acquisitions of Louth, Encoda, and Leitch.

A May 2012 analysis of the sale of the Harris broadcast business showed that the company has approximately 1,700 employees and had revenue of approximately $375m through the third quarter of FY 2012, essentially flat with the previous year.  It is believed that Harris BCD had revenue of approximately $500m for the full FY 2012, which ended on June 30, 2012, down about 10% versus the previous year.

 

Deal Valuation Below Book Value

The $225m valuation of BCD is below Harris Corp’s internal valuation of BCD, which the company said during its most recent earnings announcement that it had lowered to approximately $287m based on “recent indicators of value during the first quarter of fiscal 2013, including market, financial performance and indications of value from interested parties.”

At that time, Brown said this lowered internal valuation gives an “indication of the value we expect to receive” from the sale of Harris BCD.

The recent write-down of BCD is the third time in the last six months that Harris has taken a non-cash impairment charge against the value of BCD.

In May 2012 when Harris Corp announced its intention to divest BCD, the company 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.”  Information about how Harris Corp calculated this write-down was published in the company’s Q3 FY 2012 10-Q filing.

Harris subsequently disclosed a second BCD impairment charge of $23.6m in August 2012 as part of the company’s annual 10-K filing with the SEC, which said:

 “Due to the length of time necessary to measure the impairment of goodwill and other long-lived assets, our impairment analysis [of BCD] was not complete as of the end of the third quarter of fiscal 2012. In the fourth quarter of fiscal 2012, we completed our impairment analysis and, as a result, recorded a $23.6 million ($10.5 million after-tax) increase to our initial estimated impairment charge. The portion of the total $447.6 million impairment charge related to goodwill was $395.6 million, a minor amount of which was deductible for tax purposes.”

 

Potential Implications of the Deal for the Broadcast Industry

The fact that Harris BCD was acquired by a private equity firm with no previous experience in the broadcast technology space has interesting implications for both Harris BCD and the broadcast technology landscape as a whole.

Since Harris Corp announced its intention to sell the broadcast unit, many names have been bandied about as potential buyers of BCD — ranging from established industry players such as Grass Valley (via their PE owner Francisco Partners), to large “strategic buyers” with some existing activities in the broadcast industry (similar to Belden’s purchase of Miranda Technologies earlier this year), to private equity players.

Now that the buyer has been announced, the next question is whether The Gores Group will use BCD as a platform for further expansion into the broadcast industry (as Belden said it would do with Miranda), or break BCD up and sell it off.

Time will tell.

 

What’s Next For Harris Corp?

Having found a buyer for BCD, Harris Corporation can now concentrate on its core defense business.  This was one of the primary factors cited by Brown when he announced the plan to sell BCD in May 2012, saying to equity analysts: “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.”

However, things are getting tougher in the defense business due in large part to hundreds of millions of dollars in mandatory budget that are scheduled to take effect in early 2013. This has put pressure on Harris Corp.  According to a recent Associated Press article Lazard Capital Markets analyst Michael Lewis downgraded his rating on the company’s stock, citing worries about weaker revenue due to reduced government spending.

This may make Harris Corp a potential takeover target.  Indeed, according to a recent Reuters article, the collapse of the proposed $45 Billion merger of defense giants BAE and EADS “will shift the focus to smaller deals among global weapons makers as companies strive to keep revenue rising in the face of cuts in military spending by the United States and Europe.  Instead, major defense companies likely will focus on possible combinations with smaller players such as Rockwell Collins, L-3 Communications Holdings Inc, SAIC Inc, ITT Exelis and Harris Corp, according to interviews with more than a dozen industry executives and bankers.”

Given the environment, one has to wonder whether the divestiture of BCD is a precursor of an eventual sale of Harris Corporation itself to a larger defense contractor. After all, both the company and its CEO may now be well-positioned for the next deal.

With the pending disposal of BCD now announced, Harris Corp is now a pure-play “mid-tier” defense contractor, and therefore more attractive as a potential partner to another defense firm; and Brown himself is well-suited for this environment.  He joined Harris from United Technologies (UTC), where he orchestrated a $16.5 billion deal to buy Goodrich Corp., which closed after he joined Harris as CEO.  Previously, as the head of UTC’s Fire & Security division, he executed more than 40 M&A deals, creating a $6.5 Billion operation in the process.

 

 

 

 

 

Related Content:

 

Press Release: Harris Corporation to Sell Broadcast Communications to The Gores Group for $225 Million

Harris Corp Announces Q1 FY 2013 Results, Further Writes Down Value of Broadcast Business

Harris Corporation To Divest Broadcast Business

Analyzing the Sale of the Harris Broadcast Division

Guest Post: Investment Banker Perspective on Sale of Harris Broadcast

Statement From Harris Broadcast CEO on Divestiture of Harris Broadcast Communications Division

Harris Q3 FY 2012 10-Q Filing – details write-down of broadcast division

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

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

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