Viasat (NASDAQ:VSAT) today announced the sale of its government-focused Link 16 Tactical Data Links business to defense contractor L3Harris Technologies (NYSE:LHX) for $1.96 billion. The transaction is expected to close in early 2023.
The satellite operator has been rumored to be exploring a sale of part of its government services unit since July. The deal represents 35% of the revenues of Viasat’s government services unit, according to a release.
“This acquisition is part of our strategic effort to ensure operators have access to the most advanced, multifunction Joint All-Domain Command and Control (JADC2) solutions available,” Christopher E. Kubasik, L3Harris chief executive and chairman, said in a statement. “Viasat’s TDL product line naturally aligns with our proven communication capabilities, and we are excited to partner with our customers and coalition allies as we modernize the Link 16 enterprise.”
“We’re still assessing all the technology options, but we aim to augment with our Advanced TDLs across all domains, to include weapons data links and space-based applications,” an L3Harris spokesperson told Connectivity Business News. “Our customers have made it clear they want ease of use and true sensor-to-shooter, multi-function capabilities, from permissive to contested environments, and we want to lead in this important JADC2 construct.”
The $1.96 billion purchase price is 14x the last 12 months’ earnings before interest, taxes, depreciation and amortization (EBITDA), net of tax benefits ($350 million net present value, total value of $500 million over an undisclosed period) and estimated merger synergies, according to an L3Harris investor presentation.
L3Harris won a $700 million contract from the Space Development Agency (SDA) earlier this year, part of a missile-tracking system that will pass data to the SDA’s Transport Layer satellites, which will then be able to pass data onto terrestrial users via Link 16 terminals.
The defense contractor’s leverage ratio, the net of debt and cash and cash equivalents divided by adjusted EBITDA, will rise to 1.9x, according to the investor presentation.
The unit’s 450 employees will join L3Harris, according to a release. Viasat currently has approximately 7,000 employees worldwide, a spokesperson told Connectivity Business News.
Viasat reduces debt
Viasat will use the proceeds to reduce debt, according to the release. If the sale had closed in Q2 2022, net leverage would have dropped from 4.2x adjusted EBITDA to approximately 1.4x. After the close of the Inmarsat acquisition, it will reduce leverage by approximately 0.7x. The transaction will lower Viasat’s net debt “by over 70% and our leverage ratio by almost the same amount in a capital markets environment intensely focused on the impact of rising interest rates,” Viasat Chairman and Chief Executive Mark Danberg said in a blog post.
“Clearly, the transaction significantly benefits [Viasat]’s leverage position as it gets ready to handle the [approximately] $5.4 billion acquisition of Inmarsat (adjusted for Friday’s Viasat stock price),” Ric Prentiss, Raymond James managing director and global head of telecommunications research, said today in a note.
Viasat’s government systems unit pivots to commercial synergies
“The transaction also makes sense as we think the Link 16 business is less intertwined with [Viasat’s] satellite-based operations than some other areas of [Viasat’s government systems unit],” Prentiss added.
“[C]ontinued defense consolidation, and a rapidly evolving tactical network environment, deserve more ongoing investment in terrestrial data links than we can support,” Dankberg wrote. “The L3Harris portfolio of related data links and tactical radios, combined with our TDL business will be very well positioned for sustained growth.”
After the sale, Viasat’s government systems annual revenue will be approximately $700 million, rising to more than $1 billion after the close of the Inmarsat acquisition, according to Dankberg. The company’s remaining government systems business “shares extensive synergies with our commercial satellite services and technology areas, and we believe we can achieve faster Government Systems segment growth through greater corporate focus on space and satellite networks going forward,” he added.