Global communications group Harris Corporation has won the battle for oilfield services giant Schlumberger’s Global Connectivity Services (GCS) business. Harris will pay just under US$400m for GCS, financed through a combination of cash on hand, existing…
Global communications group Harris Corporation has won the battle for oilfield services giant Schlumberger’s Global Connectivity Services (GCS) business. Harris will pay just under US$400m for GCS, financed through a combination of cash on hand, existing credit facilities and potentially the issue of new term debt, with the final structure to be determined over the next couple of weeks. Under the terms of the transaction, Harris will pay US$397.5m in cash, subject to post-closing adjustments. However, given that the goodwill arising from the purchase will be an allowable tax expense worth approximately US$50m, the effective purchase price is US$347.5m. As SatelliteFinance previously reported, Schlumberger mandated JP Morgan back in April to run a sales process for its GCS unit and by mid-July five parties had begun due diligence on the business. These potential bidders included two private equity firms, Advent and Providence, and three satcoms services specialists, Vizada, MTN and of course Harris Corp. Headquartered in Aberdeen, Scotland, GCS predominantly provides communications services for the oil and gas industry, connecting remote rigs and offices both terrestrially and via satellite. The unit has principal operations in the UK, Norway, Singapore and the US, with approximately 400 employees in more than 25 countries, as well as 12 globally deployed teleports, a Network Operations Center, and VSAT manufacturing capabilities in the UK and Singapore. GCS’ customers are predominantly global integrated energy companies and oil and gas services companies, while its parent company, Schlumberger Limited, represents about 20% of the subsidiary’s revenue. Indeed, speaking at a conference call about the transaction, Harris’ chairman, president and CEO, Howard Lance, said: “Integral to this acquisition is a long-term preferred supplier agreement with the parent company. We think this arrangement with Schlumberger on a go-forward basis should provide good revenue stability for the future.” For the year ending 31 December 2010, GCS is expected to generate revenues of US$170m, EBITDA of US$41m and operating income of US$31m. Excluding acquisition-related charges, Harris estimated that the acquisition would have a minimal impact on GAAP earnings in fiscal 2011, slightly accretive in fiscal 2012 and a significant contributor to earnings and growth in fiscal 2013 and beyond. The transaction is subject to customary regulatory reviews and it is expected to close during the first quarter of 2011.
Merger with CapRock to gain scale in international market
The acquisition of GCS is the second major acquisition by Harris in the mission-critical satcoms sectors following the US$525m purchase of CapRock Communications back in June 2010 and once the acquisition is complete, GCS will be merged with CapRock to form Harris CapRock Communications. Harris estimates that the combined company, which will be led by CapRock president Peter Shaper, will generate fiscal 2011 pro forma revenue approaching US$600m. Both deals are part of Harris’ strategy to aggressively expand its assured communications business with Lance stating: “It (the acquisition) supports our stated Harris growth strategy of providing assured communications services in an expanding list of vertical growth markets as well as expanding into international markets where we believe the long term growth opportunities are robust.” He added that the combination of the two recently acquired companies also gave Harris the necessary scale to compete in the international market. “When you start adding together the increasingly complex global market and when you want to have real international reach across these verticals of maritime, energy and government, scale does matter because you are able to put in place larger fixed infrastructure, in terms of teleports and networks operations, and also the very important element of the distributed field force for mission critical applications, such as nearby qualified serviced technicians,” Lance argued. Lance also did not rule out further acquisitions in the satcoms sector, although emphasized that the integration of GCS and CapRock was the priority. “We want to do a first class job on integrating these acquisitions, but it certainly doesn’t mean we won’t look at any acquisitions. However, for deals of this size, we are going to be busy working on delivering synergies over the coming months while using our great cash flow to replenish our balance sheet. That said, we do believe this acquisition still gives us a significant amount of additional leverage on the balance sheet, should we want to use it.”
