KVH Announces Sale of Videotel for $90 Million

KVH Industries, Inc., (Nasdaq: KVHI), today announced that it has sold its maritime training business, the Videotel group of companies, to an affiliate of Oakley Capital for a base purchase price of $90 million, on a cash-free, debt-free basis, subject to working capital adjustments.  The sale was completed immediately upon execution of definitive agreements.  
 
“As part of our long-term strategic roadmap, we are focusing on the large and growing markets of our core mobile connectivity and inertial navigation businesses,” says Martin Kits van Heyningen, chief executive officer of KVH.  “We intend to use the net proceeds of the sale to invest in three key growth initiatives that we expect will drive significant value creation, as well as to reduce our debt.  Specifically, we plan to invest in the development and commercialization of our photonic integrated chip technology for use in autonomous vehicles and other commercial and military platforms, to support the further acceleration of our AgilePlans (Connectivity as a Service) program, and also to finalize the development and launch of our IoT connectivity solution.  Videotel helped us to penetrate the commercial maritime markets initially, but our strategic approach has evolved to focus on faster growing markets that we believe will produce greater long-term shareholder value.”  To maintain continuity for KVH’s AgilePlans customers, KVH has retained certain rights to continue including the Videotel training content with the AgilePlans program.
 
Management expects to issue revised financial guidance for the second quarter and full fiscal year of 2019 reflecting the sale of Videotel, along with select pro forma disclosures, on or about May 15, followed by an investor conference call.  In light of the anticipated financial impact of the transaction, investors should no longer rely on the guidance previously issued by KVH, which included anticipated revenues and expenses of the Videotel business. 
 
The base purchase price was $90 million, subject to adjustment for Videotel’s cash, indebtedness, and working capital.  KVH expects to receive payment of the purchase price within 30 business days, subject to subsequent adjustment for working capital.  Payment of the purchase price is secured by a charge (a type of foreign security interest) over the shares of Super Dragon Limited and Videotel Marine Asia Limited, and is further backed by an equity commitment letter from Oakley Capital IV Master SCSp, Oakley Capital’s fourth and newest fund that has recently raised in excess of €1 billion of capital commitments. 
 
KVH expects to use a portion of the net proceeds of the sale to repay the full balance of its outstanding term loans and a substantial portion of outstanding borrowings under its revolving credit facility. 
 
The definitive share purchase agreement contains various warranties regarding the Videotel business given by KVH Media Group Limited (“KMG”), the direct seller of the Videotel companies, and KMG also agreed to provide the direct purchaser with a tax indemnity.  The purchase agreement provides a cap on KMG’s liability for breach of commercial warranties equal to 20% of the purchase price and, for breach of the title and capacity warranties and the tax indemnity, a cap equal to the purchase price. 
 
For the last 12 months ending March 31, 2019 Videotel’s revenue was $17.0 million and its operating income was $3.1 million.  Depreciation and amortization for this period was $4.8 million, and equity compensation was $0.1 million.  KVH is analyzing whether the Videotel business will be reported as a discontinued operation in its future financial statements.
 
The Videotel group of companies includes Super Dragon Ltd., Videotel Marine International Ltd., Videotel Training Services Ltd., Videotel Consultants and Rentals Ltd., Videotel Marine Asia Ltd., and Videotel Pte Ltd.tal Private Equity II, Oakley Capital Private Equity III an