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Harris Broadcast Looks Ahead to Gores

The Gores Group set to take over equipment maker early this year

Website of The Gores Group The Harris Broadcast Communications Division soon will have a new owner. Barring some unforeseen complication, the transfer to The Gores Group LLC will be finalized early this year.

The announcement settles uncertainty over Harris Broadcast’s immediate future. Now the focus moves to questions about how the owner will operate the long-time manufacturer of radio and TV transmitters, STL equipment, consoles and other systems.

Harris Corp. met its self-imposed year-end deadline of selling the division in early December. It reached an agreement to sell the division for a package worth up to $225 million. Gores is a private equity firm that has a variety of holdings including a partial stake in syndication giant Dial Global. Its founder has been described as a “fixer-upper” and once said he has a “formula to save companies” (see sidebar).

Division President Harris Morris wrote to employees: “Being owned by The Gores Group as a privately-held company will enable Harris Broadcast to capitalize on our market-leading position, continue to pursue growth opportunities, and aggressively respond to continually evolving market trends and customer needs.”

The sale price includes $160 million in cash at closing, which is expected to take place early in 2013. Some broadcast observers questioned the price, calling it low in light of past Harris purchases to bulk up. For example, Harris spent $340 million to acquire Encoda Systems in 2004 and $450 million to acquire Leitch Technologies in 2005.

In a note to clients, Devoncroft, a market research firm, compared the cash portion of the deal to a price of $200 million or more that Harris Corp. CEO William Brown had telegraphed to the market. As recently as October, officials had put a net book value of $287 million on the company’s broadcast communications business, which Brown said at the time “gives an indication of the value we expect to receive” from the sale, according to Devoncroft. The analyst speculated about whether Gores Group might use Harris Broadcast as a platform for further expansion into the broadcast industry or break up the division and sell it off.

‘Great products and a great team’

The Gores Group didn’t comment publically on the purchase other than a press release statement from Ryan Wald, managing director of The Gores Group: “In Harris Broadcast Communications, we are investing in a proven technology leader with great products and a great team. We are excited to provide the capital and support to transition this division to a strong and independent company further enabling it to continue developing and delivering market leading technologies.”

Harris Broadcast President Harris Morris calls The Gores Group a ‘well-capitalized owner.’ Morris remains with Harris Broadcast, as does the rest of the executive staff, Morris said.

Harris Broadcast headquarters will remain in Englewood, Colo. Its facilities in Quincy, Ill., Mason, Ohio, and all others will be retained, Morris said. Harris Broadcast has 15 U.S. locations and 29 more in Canada, Mexico and other countries.

Headquarters shifted to Englewood from Mason around 2010; Harris officials say many of its broadcast executives are based in Denver, along with a large part of its media software business operation. The Mason office handles business operations for the transmission business unit. Quincy is transmitter manufacturing. Other notable operations include the Toronto, Canada, office housing a majority of the business operations for the workflow, infrastructure and networking business unit; and the Pacific Design Center for PR&E studio solutions, in Vista, Calif.

The division had some 1,700 employees as of late last year.According to a story in the Quincy Herald-Whig newspaper, there were 348 employees at the Quincy facility when the company announced its intentions to sell early last year. There were layoffs there in the fall prior to the sale; at least 17 were laid off in November. Some observers confirmed to Radio World that some senior engineer positions were among those eliminated.

An image of the transmitter assembly line at the Harris Broadcast facility in Campinas, Brazil. Gores has ‘expertise’

Harris Morris will report will report to a Gores board. The company also has sought out satellite television executive Carl Vogel as a senior advisor.

Morris expects service and support of its products will not suffer through the ownership transition, though he acknowledged that the broadcast market historically doesn’t react well to disruption and uncertainty.

“We have a well-capitalized owner that’s very committed to this business and space, and it’s going to help us keep a steady hand on the tiller,” he said. “Harris will keep driving great service, support and continued innovation. Early customer reaction is very positive.”

Morris said Gores was looking for a “strong broadcast brand to add to its media portfolio,” which includes Dial Global. The latter calls itself America’s largest provider and distributor of audio content to 8,500 radio stations.

Morris believes The Gores Group brings expertise that will help accelerate some of the division’s goals “as well as help us carve out cleanly from Harris” without bumps. Gores will bring “operational expertise” and “sector expertise” to manage the exit of the broadcast division from the umbrella of Harris Corp.

“The Gores Group thinks Harris has a great deal of growth potential, with a lot of growth coming from abroad,” he said.

Who Is the Gores Group?

The Gores Group, founded by Alec Gores in 1987, is a private equity firm with approximately $3.3 billion in assets under management. The firm is headquartered in Los Angeles with offices in Boulder, Colo., and London.

The investment firm has acquired and operated 60 companies since its founding, according to its website. It acquired Westwood One radio network in 2008 and reduced costs by $65 million before merging the company with Oaktree Capital’s Dial Global in 2011, the site states. Gores Group still holds approximately 35 percent ownership in Dial Global.

Its portfolio of technology, telecommunications, health care and entertainment holdings now includes Harris’ broadcast division. The Gores Group currently owns or has an interest in Siemens Enterprise Communications, Sage Automotive Interiors, Scovill Fasteners and Stock Building Supply.

Founder Alec Gores, 58, has been described as a “fixer-upper” and told USA Today in a 2002 interview that he has a “formula to save companies.” The firm’s single vision is to “buy, fix and sell businesses,” according to the website.

The Gores Group declined further comment, citing the fact that its deal with Harris has yet to close. The parties expect that to happen early this year.

Alec Gores, 59, was ranked 250th on the Forbes 400 list of the richest Americans in 2012 with an estimated wealth of $1.9 billion, according to his profile on LinkedIn.

Harris products will retain the Harris name for three years before being rebranded.

Without getting into specifics, Morris said the company is working on product releases to unveil at the spring NAB convention. In digital radio, it remains excited about HD Radio products, he said. “I think we are quite happy those products, such as the Flexiva line. Those things are growing nicely and doing well.”

Morris said employees have handled the stress of the sale process well. “We tried to make this as uncomplicated as possible. Uncertainty always brings stress. At the same time our team here was very patient. They believe in our vision and products. [Employee] reaction has been very positive to the sale.” In a letter announcing the sale, he thanked the staff for the loyalty they exhibited as the process unfolded.

Harris Corp. announced its intentions to sell the broadcast division in May 2012; officials explained the decision was based on a six-month review that showed broadcast had become less aligned with its core business and long-term strategy. At that point, Harris Broadcast was classified as a discontinued operation.

At one time Harris reported financial results for the broadcast division separately, but in 2011 it rolled its broadcast business into a segment called Integrated Network Solutions. A report by Devoncroft last summer said Harris’s third quarter 2012 sales were $111 million, a decline of 14 percent from the same period in 2011.

Morgan Stanley managed sale

Harris Corp., which worked with investment banker Morgan Stanley to manage the sale of the division, never characterized the level of interest from potential buyers. Some broadcast industry observers had pointed to the San Francisco-based private equity firm Francisco Partners as a potential suitor. The investment group acquired Grass Valley, which produces technology and services for the video and TV industries, in 2011.

“I can’t share how many companies wanted to bid. Scores of companies were interested and dozens submitted initial indications of interest,” Morris said. “There were companies who wanted pieces or the whole thing.”

One prominent industry observer, Vice President of Radio Engineering for Greater Media Milford Smith, said he’s pleased a deal is now complete, with a seemingly well-funded buyer.

“Folks are understandably hesitant in some case to purchase equipment with long-anticipated lifetimes not knowing the ‘lifetime’ of the manufacturer,” said Smith. “Hopefully this announcement puts that uncertainty to rest and both the Harris Broadcast Division and the industry can move forward with confidence in their business dealings.”

Those in the radio broadcast equipment manufacturing space followed developments surrounding the sale. Broadcast Electronics officials acknowledged being interested in parts of Harris Broadcast.

The Gores Group likely will make operational improvements looking to find synergies, reduce costs and raise cash, according to Broadcast Electronics President/CEO Joe Roark.

“There could be further workforce cuts and consolidation at Harris. The culture at Harris will likely be one of absolute performance,” Roark said.

He too expressed surprise at the cash price considering the company had spent hundreds of millions of dollars acquiring brands like Encoda Systems and Leitch Technologies in the past decade.

“The $160 million cash price is low but an indication of how tough the broadcast manufacturing industry is right now. There is a $15 million promissory note and another $50 million bump based on future performance, but the cash payment might be about all the Gores Group has to pay,” Roark said.

Historic ties

Harris has long held a position of significance within the broadcast equipment market.

Harris Intertype Corp. purchased Gates Radio in 1957 and entered the TV transmitter market in 1969. It later added Intraplex’s STL business and Pacific Research & Engineering consoles.

Harris Broadcast consists of four business divisions: transmission; media software; workflow, infrastructure and networking; and digital out-of-home, according to company officials.

The transmission unit includes radio and TV transmission products, exciters, PR&E studio consoles, networking solutions, studio furniture and Intraplex STL systems and IP codecs. It encompasses digital radio solutions for HD Radio, DRM/DRM+ and DAB. The unit’s large television transmission portfolio includes analog and digital transmitters for LPTV, medium-power and high-power and Mobile DTV solutions.

The media software portfolio includes traffic and billing software, business intelligence and analysis software and digital asset management.

Harris’ workflow, infrastructure and networking business unit includes servers, routers, multiviewers, signal processing and distribution, video networking, audio solutions (including loudness control) and test and measurement. The digital out-of-home division covers digital signage solutions and serves markets outside of broadcast like retail, hospitality and sports venues, according to Harris officials.

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