In the scheme of things, MacDonald Dettwiler and Associates Ltd.'s purchase last week of EMS Technologies Inc.'s small Montreal-based satellite division is a blip on the radar for this $1-billion B.C.-based tech company. Speculation is that the cash portion of the deal will come in at about $20-million (U.S.).
This acquisition shows the strengths and weaknesses of one of Canada's largest space players, which is a great help because, despite the pop culture prevalence of MacDonald Dettwiler and Associates' (MDA's ) Hubble robotic space arm, this company is so complex even analysts struggle to understand it.
These days, MDA is more than a space company; indeed, its information group has become the more dominant influence. But they share a common trait in that both are often involved in intricate relationships with governments. And that means a lot of give and take.
For instance, MDA's recent purchase of Atlanta-based EMS Technologies' space and technology division in Montreal shows what happens when doing business with government exacts a cost.
Arguably, the EMS unit is a troubled asset for MDA. EMS had been trying to unload it for two years, which is not the strongest selling point. Indeed, according to SEC filings, the unit has lost about $65-million since 2002.
The EMS division also happens to be one of MDA's major suppliers and has been behind on delivering components for MDA's long-delayed Radarsat-2, Canada's first microwave radar satellite, which will be used to supply sophisticated data and images.
How is this relevant to the purchase? Well, MDA has a necessarily cozy relationship with the Canadian Space Agency given that space funding is so meagre in this country. Many MDA workers are former space agency employees.
This means that keeping small players such as EMS alive and preventing a shutdown in Canada's tiny space industry would likely benefit our space sector. Some analysts believe MDA has taken one for Team Canada, so to speak. Although, according to the company, the cost to its bottom line after adjustments will be limited. "It would be difficult for anyone else but MDA to buy," says Canaccord Capital analyst Jeff Rath.
A second, more lucrative example of doing business with the government -- at least for MDA -- is Radarsat-2. The Earth observation satellite is years behind schedule, at a significant cost to Canadian taxpayers. In the process, Ottawa has contributed more than $430-million (Canadian) to help build the satellite, which will replace the busy but aging Radarsat-1.
The kicker is that the new satellite is owned by MDA -- not the space agency, which owns Radarsat-1. (To be fair, $242-million of the government funding originates from a prepurchase agreement by Ottawa for data generated by Radarsat-2.) However, that's still a hefty boost from the government's coffers, given that on top of owning the satellite, MDA expects to take in almost $1-billion in revenue over the satellite's seven-year life.
Radarsat-2 definitely benefits Canadians in jobs, innovation, access to high-quality imagery and data in emergency situations, as well as creating a strong B.C. tech company. The question, however, is whether it is worth that much of a government subsidy.
Some in British Columbia would argue yes.
There is no doubt that the returns on public investment in science and technology as well as the space industry have positive and worthwhile spinoffs for these areas, and the economy as a whole.
MDA also reverses a trend of corporate headquarters leaving the province. Only five years ago, MDA was a unit of Orbital Sciences Corp. of Dulles, Va. It was repatriated when the U.S. space company fell into financial difficulty and decided to IPO the Richmond, B.C.-based unit to raise money.
Fast-forward to the present and MDA's financial performance is generally considered above reproach by analysts whose recommendations on its stock are split between "buy" and "hold" views. And this year, MDA won the B.C. Technology Industry Association's company of the year award.
The test for MDA will come in the ensuing years as both Canada and the United States decrease their contributions to space funding.
MDA saw the writing on the wall and has been refocusing its business by raising the proportion of its revenue originating from information products. These include electronically processed property information targeted at real estate agents, lawyers and governments.
But remember, any kudos should be shared with the federal government, which gives MDA a helping hand.
To tweak a line from Warren Buffett: If God had intended man to fly to the moon, he would have made it profitable.
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