IDC accelerates move into higher margin video with Tiernan purchase

International Datacasting Corp.’s purchase of Comtech Telecommunications Corp.’s money-losing broadcast division Tiernan Video comes with risks, warn analysts, but it could be what’s needed to accelerate the Ottawa company’s move beyond radio and into the higher demand – and higher value – world of video. “The acquisition is in line with our strategic plan,” says Tracy Trottier, who heads the marketing and communications department at IDC. “It strengthens and deepens our presence in the radio broadcast market.” That said, the bigger value is in video. When it comes to radio, Trottier acknowledges that the market is limited. “We’ve got the radio market pretty well sewn up, and this will accelerate our move into video,” she says. “We have a long history in radio, but over the past years the numbers have fallen off. We’re the last man standing.” Analysts caution, however, that IDC will have to move quickly to integrate people and processes into its strategic vision. “This makes sense from Comtech’s perspective,” Mark Jordan, an analyst with Nobel Financial, tells Tech Media Reports. “It’s been a tough year; Comtech’s earnings were off and they want to clear out their July fiscal.” San Diego-based Tiernan markets a line of digital video compression and decompression products including, as well as satellite equipment. Both the radio and television network product lines are being acquired by IDC, which provides advanced solutions for the distribution of broadband multimedia content via satellite. Comtech picked up Tiernan when it bought Radyne Corporation as part of an all cash transaction in May, 2008. For many analysts that transaction made sense as it expanded Comtech's satellite earth station product portfolio, but the Tiernan part was orphaned. IDC thinks it’s found the right home for Tiernan, and at the right price. The transaction is structured as an asset purchase agreement between the two companies at a price of just over US$2 million in cash. IDC has suffered somewhat from the recession – revenues are flat, though margins are up – but their business seems solid. Which brings us back to the strategic nature of the acquisition. Was it worth it? “Comtech had it for a short time, and it was losing money,” says Tim Quillin, an analyst with Stephens Inc. “The revenue, however, was level, and International Datacasting was able to acquire it relatively inexpensively.” In effect, if you are in the market and you have the cash, a recession isn’t a bad time to pick up money-losing assets off of stumbling giants like Comtech who can’t see the value. “If IDC can get the margins right then this will be a good acquisition,” says Quillin. Strategically, IDC is trying to move beyond radio into the higher demand – and higher value – world of video. As with many organizations, the company’s strategic plan is a mix of organic growth and acquisitions that are accretive to earnings. “The acquisition is specifically related to video compression,” says Trottier. “Tiernan has an excellent reputation for digital compression, as well as some well-known radio products.” IDC has said that the acquisition “will certainly contribute to our continued growth,” citing the current sales pipeline and existing customer contracts, and added in a statement that “this acquisition will contribute to our results this fiscal year, and will contribute materially to our consolidated results in our next fiscal year." “The next step is live events” IDC has a diverse customer base that it thinks fits well with the new acquisition. In the last two quarters they have shipped their Cinelive 3D products to AccessIT, now Cinedigm, for the expansion of their 3D Live network in the US, as well as additional units through cross licensing agreements with Doremi Labs LLC. They were also selected by SES Americom-New Skies to provide equipment for its global internet trunking solution. In Europe IDC sells to the broadcast radio market through their subsidiary PROFline B.V., which was just awarded a contract from two Romanian radio networks. Canada is a small slice of the pie. One important customer is SSI Micro, which uses satellite technology to deliver high speed IP networks in the Northwest Territories. But perhaps the big story is Asia Pacific. In fact, president and CEO Ron Clifton was unavailable for comment for this article as he was on a plane to Australia to familiarize himself with Tiernan’s sales force there. “Overall we have added 30 people to our staff with the acquisition,” says Trottier. “That brings us to 120 people overall. This acquisition adds new depth to our sales teams in China and southeast Asia.” IDC already has an important presence in southeast Asia. New Zealand Radio is a customer, as is the Australian Broadcasting Corp. “If you look at our history, IDC went from data, to audio, and now video,” says Trottier. “The next step is live events.” As proof, IDC recently demonstrated its Superflex 3D Live Encoders and Decoders during a live 3D demonstration of a robotic surgical system in South Korea.

IDC accelerates move into higher margin video with Tiernan purchase

Broadcast | August 21, 2009

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