Harris builds mobile radio muscle with Tyco wireless deal

With its $675 million purchase of Tyco Electronics Wireless Systems, the footprint of communications equipment and services provider Harris Corp. jumped a size in the $9 billion federal land mobile radio market.

The company's wireless unit, M/A-Com, supplies wireless communications systems to law enforcement, fire and rescue, and public service organizations. The unit had revenue of $461 million in 2008.

However, company officials warned that returns won’t be immediate, and they predicted that the acquisition would be a "significant contributor to earnings in fiscal 2011 and 2012.”

The acquisition “makes Harris’ land mobile radio business a formidable competitor to market leader Motorola,” said Chris Donaghey, a director at investment banking firm SunTrust Robinson Humphrey.

Analysts at Collins Stewart agreed, writing in a research note that although “Motorola is the 900-pound gorilla in the space,” the merger capitalizes on Harris RF Communications’ “strong international sales channel and military presence [and] M/A-Com's substantial domestic installed base.”

Looking to capitalize on its success in military tactical radios, Harris recently entered the market with its Unity product line.

Investment counselors at Cowen and Co. disagreed. They called the deal a “suboptimal use of cash.” A difficult growth environment in the state and local market, the increase in debt as a result of the acquisition, and a likely soft demand for Harris’ existing communications products could be problematic, they said.

Last year, despite its protests to the contrary, Harris was widely viewed as a takeover target. However, with the acquisition of Tyco’s wireless business, it appears that Harris is not for sale, Cowen analysts said. Furthermore, the sale “may deter prospective acquirers from making a bid for the company until the M/A-Com integration is a proven success.”

In 2007, Harris bought Multimax Inc. and Stratex Networks Inc. and last year bought broadcast software developer Desktopbox Inc. The Multimax acquisition has helped Harris expand into new markets, said Dan Pearson, group president of Harris Government Communications Systems, in an interview last week.

Harris is integrating the Desktopbox software into other products. However, amid disappointing returns and even more disappointing restatements of earnings from previous years, Harris Stratex will be spun off, the company announced this month.

In addition to the Tyco buy, Harris announced that it has closed on another acquisition: cybersecurity company Crucial Security Inc.

Although Harris is not actively shopping for companies to buy, it will “continue to buy capabilities where it makes strategic sense,” Pearson said before the Tyco announcement.

About the Author

Sami Lais is a special contributor to Washington Technology.

Reader Comments

Tue, Jun 2, 2009 911 Radioman

I agree with Field Testing today, though you could argue that the old M/A-Com Wireless Systems Business Unit in Lynchburg understood the market quite well; they could never got the support they needed from Tyco to really give Motorola a run for their money. Many of the people there are former Motorola, and some are top-notch. I think a leaner organization, intelligently integrated into Harris' RF Systems unit, is going to be more than a match for Motorola - particularly in the federal government and military space for land mobile product, for which there are several large procurements underway. Harris has got credibility with this customer that you just can't buy, and I mean that in the literal sense. Motorola may have had their way with this customer in the past, but in the words of one analyst, this acquisition is going to be keeping management in Schaumburg awake most of the night.

Mon, Jun 1, 2009 Casual Observer Midwest

The article is flawed by the several references to Tyco's land mobile business as M/A-COM. It had been known as that, but Tyco sold the M/A-COM name as part of a microwave products division deal some time ago. The land mobile business then became Tyco Electronics. Ya gotta fact check!

Mon, Jun 1, 2009 Field testing today

This will secure Harris as a real player in a market Tyco Electronics just could not figure out and had no course from upper mangement. To bad Tyco needed the cash so quick to shore up it's books and justfy bonuses, but in the end, this was a better fit and the outlook promising. What a opportunity Tyco missed, but Harris will achieve.

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