Veritas Capital has reached a deal to acquire the government information technology division from Harris Corp. (NYSE: HRS), a provider of tactical communications and air traffic management. The transaction is valued at $690 million in cash and is expected to close in the second quarter of 2017.
The government IT business, operating under Harris’ Critical Networks segment, provides communications, engineering, and IT services for intelligence, defense and federal civilians. The Herndon, Virginia-based IT business generates more than $1 billion in revenue` each year, and also supports NASA’s Space Communications Network and Deep Space Network programs. Funds from the sale of Harris’ IT business will be used to support the seller’s capital allocation strategy, including: pension pre-funding and share repurchases. The divesture does not include Harris’ air traffic management business, which mainly serves the Federal Aviation Administration.
Harris has been divesting business units since 2012. In November 2016, the company sold the CapRock Communications division to SpeedCast Intl. Ltd. for $425 million in cash. CapRock's energy industry exposure and weakness in its IT business segment were among the reasons behind the revenue pressure, according to Harris' 2016 fiscal report. Prior to that, Harris sold several business segments, including: the composite aerostructures, commercial healthcare, broadcast communications, and cyber integrated businesses. Electronic systems, space and intellegence systems, and communication systems are the three remaining segments after the deal.
“These divestitures sharpen Harris’ focus on growing core franchises where technology is a key differentiator, providing compelling value to our customers,” states Harris CEO William Brown.
Veritas is a New York-based private equity firm investing primarily in companies that provide technology-enabled products and services to government and commercial clients. The PE firm, founded in 1998, has managed more than 70 acquisitions across the education, energy, government services, aerospace and defense, communications, healthcare, national security, and technology industries.
Veritas acquired StandardAero, an independent provider of maintenance, repair and overhaul services to the aerospace industry, in 2015. Veritas also raised a $1.87 billion fund in 2014. The firm’s current investments also include: Abaco Systems Inc., Alion Science and Technology Corp., Anaren Inc., BeyondTrust Software Inc., KeyPoint Government Solutions Inc., SolAero Technologies Corp., Vencore Inc., and Verscend Technologies Inc. Macquarie Capital is acting as financial adviser to Veritas, while Houlihan Lokey (NYSE: HLI) is serving as financial adviser to Harris.
Technology M&A is growing and expected to soar, as companies in a wide variety of industries seek updates. Recent deals include: Oracle Corp.'s (NYSE: ORCL) $9.3 billion deal to buy NetSuite Inc. (NYSE: N), hoping to give its cloud-services strategy a big boost; Twitter Inc.'s (NYSE: TWTR) agreement to buy Magic Pony Technology, as the social network looks to improve its video quality online; LLR Partners' completed purchase of BluVector from Northrop Grumman Corp. (NYSE:NOC); Accenture’s (NYSE:CAN) purchase of Redcore; Thoma Bravo’s deal for Bomgar; and Vista Equity Partners’ acquisition of Regulatory DataCorp Inc.