- L3Harris (LHX) announced it is buying Viasat’s (VSAT) government systems unit for $1.96 billion. This is why.
Viasat (VSAT) and L3Harris (LHX) announced a definitive agreement where L3Harris will acquire the TDL product line from Viasat’s Government Systems Segment, consisting of Link 16 Multifunctional Information Distribution System (MIDS) platforms and associated terminals, which are installed in more than 20,000 U.S. and allied platforms around the world, in a deal valued at $1.96 billion.
Viasat’s Link 16 Tactical Data Link business is part of its Government Systems segment. Over the past 25 years, the business has grown to be a leading provider of Link 16 TDL products and solutions. And this sale of the business includes the Multifunctional Information Distribution System (MIDS) platforms and associated next-generation Link 16 terminals and handheld radios, as well as the Link 16 to space business.
The Link 16 TDL business had approximately $400 million of revenue and an estimated $125 million of Adjusted EBITDA for the 12 months ended June 30, 2022, the latter being burdened by the estimated amount of allocable overhead and corporate expenses expected approximately one year after closing.
L3Harris’ plan for the operations: Already a JADC2 prime, L3Harris secured a contract this July to provide the backbone of the Navy’s JADC2 architecture and integrated fires capability. And last month, L3Harris announced it is one of five companies the Air Force selected to be a part of the Advanced Battle Management System Digital Infrastructure Consortium to design and develop the JADC2 digital backbone for the Department of the Air Force, aligned with Secretary Kendall’s new C3BM vision.
Acquiring Viasat’s TDL product line, which includes its Link 16 space assets, enables L3Harris to expand resilient communication and networking capabilities to a larger user base, achieving broader end-to-end, sensor-to-shooter connectivity – from operators to platforms or weapons data links and beyond – across multiple domains.
Viasat’s plan going forward: Viasat plans to use the proceeds of the Link 16 TDL sale to reduce net leverage and increase liquidity. And pro forma for the Link 16 TDL sale, standalone net leverage as of June 30, 2022 would have decreased from 4.2x to approximately 1.4x LTM Adjusted EBITDA. Plus the proceeds from the sale are expected to reduce the combined Viasat and Inmarsat net leverage following the closing of the Inmarsat acquisition by approximately 0.7 of a turn by June 30, 2023. Viasat expects proceeds to fully fund path to positive free cash flow, including the proposed Inmarsat transaction, with lower leverage and less cash interest.
After giving pro forma effect to the Link 16 TDL sale, Viasat’s Government Systems segment would have generated approximately $700 million in annual revenue for the 12 months ended June 30, 2022. And moving forward, this segment will focus on three core areas: broadband and narrowband Satcom services, networking and technology; information assurance and cybersecurity; and an emerging portfolio of space-based services, including LEO to GEO relay and networks for a range of earth observation and sensor systems, alternate position, navigation and timing (PNT) and space situational awareness.
The Inmarsat transaction continues to proceed as expected. And both of these transactions will better support Viasat’s transition to earning a greater proportion of revenues from recurring services-based models. Pro forma for the Link 16 TDL sale and the Inmarsat acquisition, Viasat expects recurring services revenue to increase to approximately 77% of total combined revenues.
“This transaction will transform our balance sheet, reduce cash interest obligations, and sharpen strategic focus while enabling continued growth opportunities for the Link 16 business and assuring our customers of a competitive, innovative and reliable source for their future needs. The Link 16 Tactical Data Links business has been an important contributor to Viasat’s growth and earnings and the transaction recognizes the value created by our outstanding team. L3Harris has been a long-time Link 16 strategic partner and has a portfolio that will benefit significantly from these capabilities. Looking ahead, the ViaSat-3 constellation and the Inmarsat acquisition both create greater forward-looking government systems growth opportunities in space-based businesses with more R&D, capital and operational synergies.”
“Viasat’s TDL team has made outstanding contributions to U.S. and allied national security, as well as our company’s growth, through sustained innovation and impressive execution over several decades. Now, given Viasat’s increasing focus on space networks, integrating TDL with L3Harris and its portfolio of C2 assets and resources, offers new forms of growth opportunities and our long-time strategic partnership on TDL products provides a solid foundation.”
— Mark Dankberg, CEO and Chairman of the Board, Viasat
“Acquiring Viasat’s TDL product line will amplify our existing capabilities as a leading provider of resilient networking solutions. Global national security requirements are increasing rapidly in this sector, and now we will be able to advance JADC2 and broaden our multi-function, multi-domain mission solutions through integration with Link 16.”
“This acquisition is part of our strategic effort to ensure operators have access to the most advanced, multi-function Joint All-Domain Command and Control (JADC2) solutions available. 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.”
— Christopher E. Kubasik, L3Harris CEO and Chair