Transaction Overview
Last week Harris announced that it has agreed to purchase the M/A-COM subsidiary of Tyco Electronics. M/A-COM provides a broad set of product and services to support wireless communications within the public safety and public service, federal government, transit and transportation, and utilities sectors. Products include network systems and software solutions; mobile and portable radio equipment; broadband WiMAX products for high speed-data applications; and operations, service and maintenance. The purchase price is $675 million in cash structured as an asset purchase. The goodwill arising on completion of the acquisition will be an allowable tax expense with an estimated net present value of $60 million, resulting in an effective purchase price of $615 million.
Valuation
Effective Purchase Price: $615 mm
M/A-COM LTM Financial Statistics (Sept 2008):
Revenue $463 mm
EBITDA 86 mm
Valuation Multiples:
Price / Revenue 1.3 x
Price / EBITDA 7.2 x
Architect Partners Observations
While this would certainly be classified as a mature company acquisition, we believe it does highlight some important principals to keep in mind for sellers of all stripes, of course adapted for individual circumstance:
- Consolidation-driven M&A will continue to show strength as companies seek to either strengthen core businesses or divest themselves of non-core businesses.
- Financial metrics matter. In this case, M/A-COM has growing revenues with solid profitability which is expected to be accretive to Harris within the current fiscal year. Few, if any acquirers, are interested in anything but near-term financially accretive acquisitions in this environment.
- While economic uncertainty and buyer valuation discipline is certainly evident, valuations achieved are not particularly low for high quality assets.
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