Honeywell To Acquire Component Maker Com Dev
PARIS — Satellite component builder Com Dev of Canada on Nov. 5 said it had agreed to be sold to Honeywell International Inc. of the United States for 455 million Canadian dollars ($345 million) net of debt and cash in a deal that will result in the spinoff to shareholders of Com Dev’s exactEarth satellite maritime surveillance business.
The transaction occurs on the eve of what could be a major boost in business for Cambridge, Ontario-based Com Dev if it succeeds in winning a contract with OneWeb Ltd., a startup company planning to build 900 low-orbiting Internet delivery satellites.
In a conference call with investors, Com Dev Chief Executive Mike Pley and Chairman Terry Reidel said the company’s board unanimously approved the Honeywell offer, which was one of several Com Dev received after its Oct. 7 announcement that it was considering a strategic transaction.
Reidel said Com Dev had considered remaining an independent company and had produced a five-year business plan promising substantial growth. But the Honeywell bid offers shareholders the best risk/reward weighting even assuming the success of the five-year plan, he said.
“The number we received in the [Honeywell bid] is still in excess” of Com Dev valuations using the most likely growth scenarios, Reidel said during the conference call. “This is the reason for the transaction.”
Com Dev is expected to report 2015 revenue of about 210 million Canadian dollars. Phoenix, Arizona-based Honeywell said the transaction is equivalent to 10 times Com Dev’s estimated earnings before interest, taxes, depreciation and amortization (EBITDA). Com Dev employs 1,250 people in Canada, the United Kingdom, the United States, China and India.
Com Dev’s main business is building electrical switches and other components for telecommunications satellite payloads. The company estimates it has provided at least some equipment for 80 percent of the telecommunications satellites in orbit.
Com Dev attempted to expand more deeply into the U.S. military satellite market by establishing a California-based subsidiary staffed with security-cleared personnel, but ultimately shut down the operation for lack of work.
Pley said Honeywell, a major U.S. defense contractor, will offer Com Dev new markets.
Because of its position as a regular subcontractor to many satellite prime contractors, Com Dev has been a bellwether for the commercial telecommunications satellite industry. The industry is growing – if not in the number of satellites, then the amount of gear Com Dev puts on a large telecommunications spacecraft – but has been flat this year.
But Com Dev has invested in positioning itself for the OneWeb business, as has Canada’s largest space-hardware company, MDA Corp. of Richmond, British Columbia.
Pley said Honeywell performed considerable due diligence on Com Dev’s prospects and recognized the potential for growth.
In a Nov. 5 statement on the transaction, Honeywell said Com Dev’s equipment business “provides Honeywell with a broader offering to customers launching satellite payloads, with demand that in total is growing at mid- to high-single digit [rates], and near double digits with certain customers and businesses, and enables further expansion into emerging low-orbit and small-satellite constellations.”
Honeywell Aerospace Chief Executive Chief Executive Tim Mahoney said adding Com Dev to his company’s portfolio will grow its “existing space and connectivity business and [expand] our global reach to new international customers.”
Com Dev’s 73 percent-owned exactEarth Ltd. is not part of the Honeywell transaction. Pley said that as a service provider in a company of component builders, exactEarth “did not fit with Honeywell’s strategic rationale for the transaction.”
To prepare for the exactEarth spinoff and subsequent initial public offering of stock – which Com Dev attempted earlier this year but abandoned given the market’s turbulence – Com Dev and Hisdesat of Spain, which owns 27 percent of exactEarth will invest a combined 20 million Canadian dollars in cash into the business.
ExactEarth provides satellite-based Automatic Identification System (AIS) service on maritime traffic to coastal authorities and corporate customers. It has been growing quickly.
Com Dev will pay Hisdesat 9.7 million Canadian dollars to terminate their current exactEarth shareholder agreement. Hisdesat will purchase 1.9 million Canadian dollars in exactEarth debt now owed by Com Dev.
ExactEarth’s remaining debt of about 47 million Canadian dollars owed to its two shareholders will be converted into equity, and the two shareholders will subscribe to 20 million Canadian dollars of exactEarth equity.
ExactEarth reported revenue of 19.1 million Canadian dollars for the nine months ending July 31, with adjusted EBITDA of 5.7 million Canadian dollars. The company has promised a 30 percent growth in revenue for 2015, with a 35 percent EBITDA margin.
Com Dev shareholders will vote on the Honeywell transaction in January and must approve it with at least at two-thirds majority for it to close. Canadian regulatory approval, and the approval of the Ontario Superior Court of Justice, will also be needed. Com Dev said it expects the entire process to be completed by late March.