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.