Sunday, October 11, 2015

COM DEV For Sale: Is the Failed exactEarth Public Offering to Blame?

          By Chuck Black

Richmond, BC based MacDonald Dettwiler (MDA) attempted to sell its space assets to US based Alliant Techsystems (ATK) in 2008; Ottawa based Telesat Canada has been trying to sell itself off for years; and, in July 2015, Lethbridge, AB. based BlackBridge Corp, owners of the RapidEye earth-imaging constellation of five satellites, was purchased by San Francisco, CA. based Planet Labs Inc. for an undisclosed amount.

Now, another Canadian space company, Cambridge, Ontario based COM DEV International (COM DEV) has publicly confirmed what many had been suggesting for some time. The firm, which has made equipment for "more than 80 percent of all commercial communications satellites ever launched" according to its website, is now up for sale.

Chart showing COM DEV price and range on the Toronto Stock Exchange (TSE) from June 12th, 2015 until the close of business on Friday, October 9th. It's worth noting that privately held COM DEV subsidiary exactEarth LLP announced that it was spinning off into a separate, publicly traded company on June 30th, 2015, just as COM DEV pricing was about to reach its highest point for the period. The follow-on, July 31, 2015 exactEarth announcement that it would be postponing its public offering marked the beginning of a two month drop in COM DEV pricing, which was only arrested on October 7th when a COM DEV  press release, confirming rumors that the company was up for sale, touched off a flurry of stock purchases. Chart c/o TradingView

As outlined in the October 7th, 2015 COM DEV press release "COM DEV Responds to Market Speculation," the company has acknowledged that, as part of a review of its "strategic alternatives," it has been, "involved in confidential discussions with third parties with respect to potential strategic transactions involving the Company (COM DEV), with the assistance of its financial advisor Canaccord Genuity." 

The press release goes on to say that, "while such discussions are ongoing, no assurance can be given that any transaction will be announced or completed. COM DEV does not intend to make further comment unless or until there is a transaction to announce."

Canaccord Genuity Group is the largest independent investment dealer in Canada. The company has been involved with deals for Amaya Gaming Group in its $4.9Bln USD (6.18Bln CDN) acquisition of PokerStars, Yamana Gold's $3.9Bln USD (4.92Bln CDN) joint acquisition (along with Agnico Eagle) of Osisko Mining and dozens of other deals over the last decade in the aerospace & defense, agriculture, cleantech, private equity and other industry verticals.

As per the March 9th, 2015 COM DEV press release, "COM DEV provides strategic update on exactEarth."Canaccord was brought aboard to advise COM DEV subsidiary exactEarth on the "implementation of private and public funding options as well as potential merger and acquisition opportunities" and initially focused on the July, 2015 attempted exactEarth spin-off, but seems to have expanded its focus since then.

October 9th, 2015 screen shot of the COM DEV website. The company has a staff of more than 1,250, annual revenues of over $200Mln CDN, and facilities in Canada, the United Kingdom, the United States, India and China where it designs, manufactures and integrates advanced products, subsystems and microsatellites that are sold to major satellite prime contractors, government agencies and satellite operators, for use in communications, space science, remote sensing and defense applications. Over the last 40 years, COM DEV has won contracts to provide its equipment on over 950 satellites and spacecraft. Graphic c/o COM DEV

According to the October 7th, 2015 Reuters article, "Satellite equipment maker COM DEV in advanced sale talks: sources," several people familiar with the matter have indicated that Comtech Telecommunications, Honeywell International, L-3 Communications Holdings and Thales SA are among the companies that were approached by COM DEV about a potential deal.

Perhaps the real secret of COM DEV's future actions was contained in the March 14th, 2013 Globe and Mail article, "Stock to watch: Activist investor sends Com Dev into a new orbit," which discussed COM DEV shareholder Crescendo Partners LP and its intention to nominate three directors to the COM DEV board at the upcoming annual general meeting, which was held on April 24th, 2013.

As outlined in the article, Crescendo has "a reputation of tangling with Canadian technology companies (including 20-20 Technologies, Emergis, Geac Computer, DALSA, Bridgewater Systems, and Matrikon), and pushing for their sale to unlock shareholder value."

The article quoted David Barr, a portfolio manager and chief investment officer with Vancouver-based PenderFund Capital Management Ltd., as suggesting that Crescendo would likely first attempt to spin out the exactEarth subsidiary into a separate company and then position COM DEV for a sale.

Chuck Black.
According to the 2013 article, these events were expected to happen over the next two or three years, which would be about now.

For more on exactEarth and COM DEV, check out the July 5th, 2015 post, "The REAL Story Behind the Upcoming (Maybe) exactEarth IPO."

For more on the developing situation at COM DEV, stay tuned.

Chuck Black is the editor of the Commercial Space blog.

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