HC2 Holdings, Inc. (HC2) announced on Thursday to sell 100% of its subsidiary Global Marine Group (GMG) to an investment affiliate of J.F. Lehman & Company, LLC (JFLCO). The sale includes GMG’s operating subsidiary Global Marine Systems Limited (GMSL), along with several joint ventures, and excludes the previously sale of GMG’s 49% joint venture Huawei Marine Networks Co., Limited (HMN). The total base consideration for 100% of GMG (excluding HMN) is approximately $250 million, and the total enterprise value of GMG is approximately $390 million.
HC2 was founded in 1994 and is headquartered in New York. HC2 has a diverse array of operating subsidiaries across eight reportable segments, including Construction, Marine Services, Energy, Telecommunications, Life Sciences, Broadcasting, Insurance and Other.
The Marine Services Segment operates under the platform Global Marine Group (“GMG”), which includes Global Marine Systems Limited (“GMSL”), an operating subsidiary of HC2. In 2014, HC2 acquired and owned 73% equity interest in GMG which was then valued at approximately $260 million. Fugro, a Dutch offshore services provider, owns 23.6% stake in Global Marine Group (GMG).
GMG is a market leader in offshore engineering and is recognized as a high quality, independent strategic partner across multiple sectors. GMG is in a unique position, owning the world’s largest independent marine contracting fleet including two specialist cable installation and repair vessels, four maintenance vessels and 19 owned CTVs. Additionally, GMG has a diverse range of subsea equipment including eight trenchers and working class ROVs. GMG boasts a number of industry achievements, from installing the first subsea cable in 1850, being part of the consortium that invented the universal joint, and right through to today, finding solutions for client challenges such as low carbon crew transfer vessels for offshore wind farms.
GMG consists of three business units:
- Global Marine, providing fibre optic cable solutions to the telecommunications and oil & gas markets;
- CWind, delivering power cable and asset management services topside and subsea, to the offshore renewables and utilities markets; and
- Global Offshore, delivering trenching and power cable laying capabilities within the oil & gas sector.
GMG has three successful joint ventures.
- S. B. Submarine Systems Co., Ltd. (SBSS) a joint venture between Global Marine Systems Limited (49%) and China Comservice (51%), established in Shanghai, China in 1995.
- Huawei Marine Networks Co., Limited (HMN), a joint venture between Global Marine Systems Limited (49%) and Huawei (51%), established in Tianjin, China in 2008.
- CWind Taiwan, formed in 2018 addressing the needs of the fast-growing offshore renewable sector in Asia.
In October 2019, GMG sold to Hengtong Optic-Electric Co Ltd (Hengtong) its 49% stake in Huawei Marine Networks Co., Limited (HMN) at approximately $140 million, which valued HMN at $285 million (enterprise value). Under the agreement, GMG will sell 30% (approximately $85 million) of HMN to Hengtong at closing which is currently scheduled in the first quarter of 2020, and retain a 19% interest in HMN under a two-year put option agreement at the greater of the same equity value ($285mm) or fair market value. Hengtong also purchased Huawei’s full 51% stake in HMN and will own 81% of HMN upon the closing of both sales, and 100% upon the exercise of GMG’s put option.
The total base consideration for 100% of GMG (excluding HMN) will be approximately $250 million in cash, subject to customary closing adjustments, plus a potential future earn-out should JFLCO and its investment affiliates achieve a specified multiple of their invested capital. Combined with the previously sale of GMG’s stake in HMN at a valuation of $140 million, the total enterprise value for HC2’s Marine Services Segment (73% owned by HC2) is $390 million.
The GMG transaction is expected to close by the end of the first quarter of 2020, subject to customary closing conditions, with proceeds delivered to HC2 at that time. After repayment of approximately $97 million of pension and debt obligations at GMG, as well as other customary closing adjustments, taxes and transaction fees, HC2 will utilize the net proceeds it receives from the consummation of both the GMG and HMN sales to redeem a portion of HC2’s 11.5% Senior Secured Notes due 2021. The partial redemptions are expected to occur by the end of the second quarter of 2020.
Post-sale, the remaining 19% interest in HMN that is under a two-year put option agreement will remain as an indirect subsidiary of HC2.
Deutsche Bank Securities and ABN AMRO acted as M&A advisors to Global Marine in connection with the transaction.
The new owner of GMG, J.F. Lehman & Company (JFLCO), is a leading middle-market private equity firm focused exclusively on the aerospace, defense, maritime, government and environmental sectors. JFLCO was founded in 1992, has offices in New York and Washington, D.C.
Dr. John F. Lehman, Chairman and Founding Partner of JFLCO, served as Secretary of the U.S. Navy from 1981 to 1987. As the chief executive of the Navy, Dr.Lehman was responsible for the management of 1.2 million people, an annual budget of $95 billion and total assets equivalent to those of the seven largest Fortune 500 corporations combined. Prior to being appointed Secretary of the Navy, Dr. Lehman served as President of the aerospace consulting firm Abington Corporation, a delegate to the Mutual Balanced Force Reductions negotiations, Deputy Director of the Arms Control and Disarmament Agency and a senior staff member to Dr. Henry Kissinger at the White House.
The deal for the sale of GMG to J.F. Lehman & Company (JFLCO) was closed on March 2, 2020, according to HC2 press release. After repayment of approximately USD 97 million of pension and debt obligations at GMG, along with other customary closing adjustments and transaction fees, HC2 received net proceeds of $99 million from the sale of GMG to JFLCO, Fugro received US$37 million.
The HMN sale was closed on May 12 2020. The 30% interest in HMN was sold for $85 million. The remaining 19% interest will be held by HC2 subject to a two-year put option. Fugro received net proceeds of US$17.3 million from the sale of HMN to Hentong.