Satellite service providers Harris CapRock, Globecomm said to be for sale
PARIS — Satellite communications equipment and services provider Harris Corp. has put its CapRock maritime satellite services division on the sales bloc after concluding that the business will drop another 25 percent in the coming year after a similar decline in the past year, industry officials said.
Industry officials said satellite services provider Globecomm, which occupies a neighboring sector of the market but like CapRock is a maritime player, is also being put up for sale by its owner, private-equity investor Wasserstein & Co.
Wasserstein purchased Globecomm in 2013 for $340 million.
The moves, if pursued, would be the latest examples of the long-predicted consolidation among providers of managed satellite services to corporate customers including oil and gas producers and cruise-line operators.
Industry officials said companies likely to take a hard look at CapRock and Globecomm include competitors SpeedCast International of Hong Kong; RigNet Inc. of Houston, Texas; Global Eagle Entertainment (GEE) of Los Angeles and Lake Forest, California-based Panasonic Avionics.
Jim Burke, a spokesman for Melbourne, Florida-based Harris, said the company would not comment on market rumor. Hauppauge, New York-based Globecomm did not immediately respond to a request for comment.
A purchase, and then a collapse in oil prices
Harris purchased then privately held CapRock in 2010 for $525 million in cash. It was a time when crude oil prices surpassed $100 per barrel, exploration rig demand was high and CapRock was seen as a $400 million annual business.
Since then, oil prices have dropped by more than 50 percent, rigs have been sent to port and satellite services providers to the energy sector have all suffered.
In an Aug. 29 filing with the U.S. Securities and Exchange Commission (SEC), Harris said CapRock still maintained more than 1,000 sites worldwide for energy customers and provided turnkey managed satellite communications services to more than 450 commercial vessels.
Restructuring to return to profitability, but no market upturn
To mitigate the effect of the energy-price drop, CapRock has made a push into the cruise-line market and now serves two customers with a total of more than 130 vessels.
It has not been enough. For the year ending July 1, Harris said its Critical Networks division, which includes CapRock, reported an operating loss of $106 million, compared to operating earnings of $131 million a year ago, mainly because of a mid-year non-cash charge of $367 million to account for CapRock’s reduced prospects.
The company has reduced CapRock’s headcount by more than one-third cut other costs, and this allowed the business to return to profitability in the three months ending July 1 “despite significantly lower revenue” than in the three previous months, Harris Chief Financial Officer Rahul Ghai said in an Aug. 2 conference call with investors.
Harris Chief Executive William M. Brown said the CapRock business is now generating revenue of about $240 million annually but that the next 12 months is likely to see that drop further.
“With oil sitting in the low $40s, we see a bit of incremental pressure,” Brown said of CapRock’s near-term prospects. “We expect to make money in CapRock energy next year but we see another step down [in revenue] in that segment again, about 25 percent.”
Brown gave a detailed overview of the company’s portfolio-reshaping strategy during the conference call but did not imply that a CapRock transaction was imminent.
The rest of the Harris space-related portfolio — maintaining U.S. government ground radars and performing classified work — reported growth for the year ending July 1.
As he has in the past, Brown said it was particularly optimistic about Harris’ filed rib-antenna business, which has applications on Earth observation, science and telecommunications satellites.
Brown said Harris has completed testing of its received interim U.S. National Security Agency (NSA) certification for a software patch to enable already fielded, Harris-built tactical radios to use the higher-throughput capability of the U.S. Navy’s Mobile User Objective System (MUOS) satellites, which are already in orbit.
“Getting a formal NSA cert should happen over the next several months,” Brown said. “Once we get the formal NSA cert, it should trigger some orders happening. We have about $10 million in backlog right now and we do see tens of millions [of dollars] in opportunities in MUOS. We still feel very, very good about that opportunity in fiscal 2017.”