US aerospace manufacturing giant Honeywell is taking over Com Dev in a C$455m deal that will see the Canadian space hardware maker spin off exactEarth, its maritime tracking venture. The deal will help Honeywell meet growing demand for wireless connectivity, communications, LEO constellations and emerging smallsat components.
US aerospace manufacturing giant Honeywell (NYSE:HON) is taking over Com Dev (TSX:CDV) in a C$455m deal that will see the Canadian space hardware maker spin off exactEarth, its maritime tracking venture.
Shareholders will initially get C$5.125 for each Com Dev share they own on top of 0.1977 of a share in exactEarth, which will become a publicly traded standalone company. They could later get up to C$0.125 more per Com Dev share based on how exactEarth’s stock trades after closing the deal.
Com Dev has a 73% stake in exactEarth and the rest is held by Spain’s government-focused satellite services operator Hisdesat. The target’s shareholders will continue to own about 73% of the data services business following the deal, with the Spanish firm also retaining the size of its stake.
Com Dev employs more than 1,250 people, generates revenues exceeding C$200m, and claims to have won contracts to supply its equipment on more than 950 spacecraft – including 80% of all commercial communications satellites.
Honeywell, a Fortune 100 conglomerate with about 127,000 staff and US$40.3bn in sales in 2014 – US$15.6bn for aerospace – has a far-reaching space business spanning launch vehicles to spacecraft.
It said the acquisition will expand its space and connectivity portfolio globally, and also marks its entry into radio frequency technology for data networking satellites and communications. Com Dev will also help it meet growing demand for wireless connectivity, communications, LEO constellations and emerging smallsat components.
“Com Dev is a terrific fit for Honeywell, growing our existing space and connectivity businesses and expanding our global reach to new international customers,” said Honeywell Aerospace CEO Tim Mahoney.
“Com Dev’s differentiated technologies and strong position in the growing connectivity industry make the company an attractive addition to our business.”
Com Dev holds more than 250 patents and has facilities in Canada, China, India, the UK and US.
Honeywell was said in October to have approached Com Dev about a deal, along with companies including Comtech Telecommunications, L-3 Communications and Thales.
Com Dev revealed it was in talks with potential buyers on 7 October, two months after putting an IPO of exactEarth on hold because of challenging capital market conditions and a turbulent Toronto Stock Exchange.
Canaccord Genuity, which had been working on the IPO, then switched to advising Com Dev on a sale.
The investment bank had originally been hired in March to advise on M&A and funding options for exactEarth, where Com Dev expected most of its growth to come from as it expands from vessel tracking into the much larger maritime data services market.
Honeywell said its deal represents a 46% premium over Com Dev’s C$4.49 closing price the day before it revealed possible sale talks. It represents a 61% premium over the 20-day volume weighted average price of Com Dev’s shares on 9 March, which is when it announced that Canaccord Genuity had been brought in to review exactEarth’s options.
Gardiner Roberts is legally advising Com Dev on the Honeywell deal and Osler, Hoskin & Harcourt acted as legal counsel to the special committee of Com Dev’s board. The Black Box Institute provided strategic advice to Com Dev’s management, while exactEarth obtained legal advice from Stikeman Elliott.
Honeywell did not hire an adviser.
The transaction is being carried out through a ‘plan of arrangement’ under Canadian law and is subject to a shareholder vote expected to take place in January. It needs at least two-thirds of those votes to be in favour of the deal, as well as customary conditions including the approval of the Ontario Superior Court of Justice.
Directors and certain shareholders owning about 11% of Com Dev have already expressed their support.
Capital injection to bolster exactEarth
In addition, Com Dev and Hisdesat plan to convert shareholder loans into equity and inject capital to strengthen exactEarth’s balance sheet. Hisdesat will buy around C$1.9m of debt that exactEarth owes Com Dev, and the remaining C$47m of those shareholder loans will be converted into equity at an implied enterprise value of C$125m.
The owners plan to subscribe for about C$20m worth of exactEarth equity, with Com Dev spending C$14.6m to keep its stake at 73%.
Michael Pley, Com Dev’s CEO, said: “We are pleased to join the Honeywell team. I believe that as a global corporation with extensive market reach and a proven ability to integrate acquisitions, Honeywell will help us realise our ambitious growth plans. I am confident that Com Dev’s customers will benefit from us joining a larger organization that shares our commitment to quality.”
Honeywell recently said it has generated around US$12bn in sales through more than 80 acquisitions since 2002.
The exactEarth venture posted C$19.1m in revenue for the nine months to 31 July 2015, a 68% increase compared with the nine months ended 1 August 2014.
Its EBITDA was C$3.6m in the nine months ended 31 July 2015, compared with C$1.2m for the nine months to 1 August 2014.
