After months of speculation, Melbourne, Florida-based Harris Corp. (NYSE: HRS) announced Friday it is selling its government IT services division to New York private equity group Veritas Capital for $690 million in cash.
The Herndon-based government IT division, which is expected to generate about $1.07 billion in revenue in 2017, has roughly 900 employees locally. The unit serves NASA’s Space Communications Network and Deep Space Network programs. Harris’ air traffic management business is not part of the deal.
The acquisition is expected to close before the end of fiscal 2017. Harris stock was up about 1.6 percent in early trading Friday.
The sale is just the latest example in a wave of major defense and government services companies shedding their noncore IT divisions or units.
I began writing about rumors that Harris was looking to divest this line of business in August, the same month that Lockheed Martin Corp. merged its Information Systems and Global Solutions business with Leidos Holdings Inc., creating the largest government services company. Harris CEO
Speculation about a divestiture heated up in August after activist investor Jana Partners LLC took a 1.9 percent stake Harris, tipping off Wall Street analysts that a deal may be in the company’s future. Jana had taken a 5.9 percent stake in early 2015 in Computer Sciences Corp. and months later that company announced it would spin off its public sector IT business. That spinoff eventually merged with SRA International to create what is now known as CSRA Inc. (NYSE: CSRA).
Harris also hasn’t shied away from divesting large business segments. In February 2016, Harris announced that it was selling its aerostructures business to Albany International Corp. in $210 million deal. In November, ahead of a quarterly earnings call with analysts, Harris announced that it was selling its CapRock Communications business for $425 million to SpeedCast International Ltd. I wrote about how this move only intensified the prospect that the IT services division was next.
“Today’s announced divestiture, coupled with the recent sale of CapRock, reflects our strategy of optimizing the business portfolio to create shareholder value,” Harris Chairman and CEO William Brown said in a statement Friday. “These divestitures sharpen Harris’ focus on growing core franchises where technology is a key differentiator, providing compelling value to our customers.”
The CapRock Communications business provides wireless communications for cruise ships and energy customers. It was a laggard within Harris and its divestiture served as indication that it would portend an IT divestiture, largely because on earnings calls with analysts, Harris management often mentioned its struggles in the same breath that it talked about the IT services businesses comparable challenges.
With this purchase, the New York-based Veritas Capital adds another Beltway government services company to its portfolio. This new purchase will join McLean-based Alion Science and Technology Corp. and Chantilly-based Vencore Inc. Vertias also owns Loveland, Colorado-based KeyPoint Government Solutions Inc. and was rumored to be buying a spinoff of BAE Systems Inc.’s government IT services before that company pulled those assets off the market.
It’s not clear whether Veritas will establish the Harris unit as its own stand-alone company or merge it with other holdings.
Article by James Bach, covers federal contracting, Washington Business Journal, Complete Article [ HERE ].