The move by MacDonald Dettwiler and Associates Ltd. (MDA) to acquire the financially challenged Space & Technology/Montreal division of EMS Technologies Inc. drew a mixed reaction from the financial community.

EMS has been trying to unload the division for nearly two years, and MDA announced Oct. 31 it would take over the operations, in part because of an existing relationship the company has with EMS.

“A lot of the work that we are doing in the area of satellites was subcontracted to EMS Montreal, most notably the Radarsat-2 payload and the Cassiope payload, which [EMS Montreal is] working on,” Mag Iskander, executive vice president and general manager of MDA told Satellite News. “It’s the traditional, almost standard vertical integration, deepening the offering we have in the area of satellite in particular.”

MDA also hopes the acquisition will open the door to new business opportunities. Iskander said the acquisition puts MDA “in a stronger position” to compete for contracts in Canada. “Hopefully, by deepening the offering and the core competencies we have, that will give us a stronger position in the U.S. and the international area.”

An EMS spokeswoman deferred any questions about the transaction to the company’s upcoming conference call to discuss its third quarter financial performance. However, in a release, EMS President and CEO Alfred Hansen said that “Space & Technology/Montreal has excellent people and technology, but its focus on commercial space programs and its role in the Canadian space industry fit much better with MDA’s business than with the balance of our businesses.”

Neither EMS nor MDA disclosed the value of the transaction, though EMS did say that cash to be received at closing is expected to enable EMS to reduce its existing bank indebtedness by about $20 million.

David Wright, analyst with BMO Nesbitt Burns, estimated in an Oct. 31 research report that the net purchase price for MDA will be roughly Cdn. $15 million dto Cdn. $16 million ($12.7 million to $13.5 million), which included the canceling of revenue that originates from MDA, the purchase of an $8 million receivable owed to EMS by MDA for work on Radarsat-2 and the selling of certain assets acquired in the transaction.

A History Of Problems

Wright’s report called the impact of acquisition slightly positive.”For a nominal price, MDA gains control over its subcontracted work for various satellite projects,” Wright wrote in the report. “However, we have been expecting MDA to reduce its exposure to the satellite industry. As such, minimizing supplier disruption appears to be a key driver for this transaction.”

However, Richard Stoneman, analyst with Dundee Securities, noted that the business has a history of financial difficulties dating back to when Spar Aerospace owned the operation and continuing through EMS’ ownership.

“EMS really struggled to deliver on Radarsat-2,” Stoneman told Satellite News. “Before that, Spar struggled delivering telecommunications satellite and other hardware for year. Has anyone ever made money running that operation?”

But Wright believes some of the changes in the market will work in MDA’s favor.

“The market has matured,” Wright told Satellite News. “There aren’t as many suppliers, so that can help the supplier with pricing arrangements (fewer competitors to deal with, offering better potential pricing arrangements). Additionally, MDA believes it can direct the [research and development] efforts into more profitable areas.

“EMS tended to develop technologies. MDA plans to sell solutions, rather than specifically technologies. Thirdly, it would appear that MDA is very disciplined about the contracts it enters into. It seems to be very good at determining what is needed for a contract, and pricing appropriately. In other words, it seems MDA is a better-run company than its competitors that have struggled” with this division.

–Gregory Twachtman

(David Wright, BMO Nesbit Burns, 416/359-5762; Richard Stoneman, Dundee Securities, 416/350-3337; Mag Iskander, MDA, 905/790-2800 ext. 4444)