SpeedCast to purchase Harris CapRock for $425 million in cash

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PARIS — Satellite communications network service provider SpeedCast of Hong Kong on Nov. 1 said it would purchase competitor Harris CapRock in an all-cash transaction valued at $425 million.

The deal was not unexpected. Harris CapRock’s energy and maritime business has sagged with the broader market decline following the drop in crude-oil prices.

Melbourne, Florida-based Harris had recently told investors that the past sharp maritime revenue declines would continue, with a 25 percent revenue drop expected in the coming year despite growth in the vacation cruise business.

SpeedCast Chief Executive Pierre-Jean Beylier, whose appetite for mergers and acquisitions has been well-demonstrated in recent years, said the Harris CapRock purchase is “a transformational opportunity for SpeedCast.”

“With this acquisition, SpeedCast becomes the global leader in the industry, with a scale that enables us to deliver world-class services and support in over 100 countries,” Beylier said.

In a reference to the fact that the transaction comes at the low end of the business cycle for the maritime and energy sectors, Beylier said: “The acquisition enables us to build a leadership position in the energy sector at an attractive stage in the market cycle.”

A combined 6,200-ship fleet

The combined company will have more than 6,200 maritime vessels under contract, plus hundreds of energy rigs and platforms in addition to corporate and government customers.

Industry observers have long predicted a consolidation in the managed satellite services industry, and SpeedCast has shown itself more than willing to lead the effort.

Satellite services provider Globecomm is also said to be up for sale by its owner, private-equity investor Wasserstein & Co., which purchased Globecomm in 2013 for $340 million.

Harris bought CapRock for $525 million in cash in 2010, a time when oil prices surpassed $100 a barrel, offshore-rig count was high and CapRock was viewed as a $400 million annual business. That same year, Harris purchased Schlumberger’s Global Connectivity Services division for $397.5 million and in 2011 merged it into CapRock to create Harris CapRock.

In an Aug. 29 filing with the U.S. Securities and Exchange Commission (SEC), Harris said CapRock was providing services to more than 450 commercial maritime vessels. The company has been diversifying its portfolio to include the luxury-cruise market, winning two customers with a combined fleet total of more than 130 ships.

Buying after CapRock’s downsizing

Harris reduced CapRock personnel by more than a third and cut other costs, returning it to profitability for the three months ending July 1 despite a substantially lower revenue base.

Harris said the smaller CapRock should generate revenue of about $240 million but that this figure could drop by 25 percent if oil prices stayed below $50 per barrel.

It would appear that SpeedCast is buying a CapRock that has already been tailored to fit the current market’s reduced size. SpeedCast said the transaction is likely to complete regulatory review by the spring of 2017.

Industry speculation has been rife on whether SpeedCast’s new muscle, even before the CapRock purchase, would lead to acquire of one of the airline connectivity players.

Up to now, the purchasing has been air-to-ground: in-fllight connectivity providers Panasonic Avionics’ purchase of ITC Global, and Global Eagle Enertainment’s purchase of EMC. But the fixed-cost logic of satellite bandwidth is two-way. A maritime company’s rolling up of an aeronautical-connectivity player has the same synergistic effect on satellite spending.