L3Harris Technologies is selling its Commercial Aviation Solutions (CAS) business to private equity investors for as much as $800 million as it works to pay down debt associated with L3Harris’s acquisition of Aerojet Rocketdyne.
The deal also includes the potential sale of L3Harris’s surveillance joint venture, which is subject to a right of first refusal to the PE investors, TJC. The transaction is expected to close in the first half of 2024 and is subject to customary closing conditions and regulatory approvals, the companies announced Nov. 27.
The CAS unit employs around 1,450 people and offers pilot training, flight data analytics, avionics and advanced air mobility products and services, among other capabilities. The business is one of many commercial-oriented units that L3Harris has divested in recent years as it focuses on core defense businesses under L3Harris Chairman and CEO Chris Kubasik.
“Today’s announcement is consistent with our multi-year strategy to optimize our national security, technology-focused portfolio,” Kubasik said in the announcement.
Kubasik’s strategy has been to make L3Harris the so-called sixth-largest defense prime contractor for the Pentagon. In July, the company closed its purchase of key missile and rocket propulsion provider Aerojet Rocketdyne in a deal worth $4.7 billion when it announced. The payment stretched L3Harris’s debt load to four-times (4x) pretax earnings at the time.
Financial analysts were not surprised by the latest sale and expect more divestitures. “We believe L3Harris could look to further divest non-core assets as part of its debt repayment and portfolio optimization initiative,” Ken Herbert of RBC Capital Markets said.
The company is aiming to cut net debt to below 3x by the end of December, from 3.7x at the end of September.
On Dec. 11-12, L3Harris is expected to brief investors on future forecasts and business plans.
Terms of the CAS deal include TJC paying $700 million in cash plus a contingent earnout payment of up to $100 million based on the CAS unit hitting performance targets in 2023 and 2024.
TJC, formerly known as the Jordan Co., is a middle-market private equity firm that has been active in commercial aerospace, along with technology, telecom and power, logistics and supply chain, and consumer and health care.
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