After helping to reshape the FSS landscape, investors took a step back from satellite during the economic downturn. Now old and new investors are being lured back by promising opportunities.
An influx of private equity into the satellite communications sector in the last 10 years helped redefine the FSS landscape, and now the MSS sector and other areas of the satellite world may benefit from investors looking to capitalize on what is considered both a safe and profitable business. “The financial state of the satellite industry is quite strong, and I think its performance during the 2008/2009 ‘Great Recession’ surprised many investors, but not us. We have been preaching to institutional investors for years now the recession resistivity of the satellite industry and its low correlation to the general economy,” says Hoyt Davidson, managing partner, Near Earth LLC. “… It certainly depends on the unique attributes of the specific company seeking financing and the sector in which they participate, but generally the investment-grade and high-yield debt markets are open to satellite companies where cash flows will support leverage, especially for refinancings of more expensive debt. The debt financing component of ViaSat’s acquisition of WildBlue was a notable transaction last year. Total leverage ratios may move up slightly in 2010, but should remain well below 2007 levels. We would not expect to see many negative cash flow businesses close debt financings this year other than export credit agency backed loans for new satellite construction.”
In terms of financing trends going forward, “Bank lending is expected to be better than 2008/2009 but remain constrained throughout much of 2010, especially for small and midcap companies, which is pretty much the entire industry. This reduced credit capacity is more systemic than a function of the particular merits of the borrower. Acquisition financings will continue to need more equity and less debt than in the 2007 and earlier periods. On the equity front, private equity and venture capital have been hard to attract, but there are signs of much improvement and plenty of cash on the sidelines,” he says,” Davidson adds.
“Private equity companies have a strong and continuing interest in satellite communications companies,” says TelAstra president Roger Rusch. “This is a glamorous industry. The business is capital intensive and has prospects for high cash flows. I talk to dozens of hedge funds and private equity investors every year. Many are interested in equity participation, others are interested in debt or short selling. Many of the prospective investors are not steeped in the communications industry. They are experts in market timing and making leveraged trades with high payoff potential. Many of these investors are interested in special situations like distressed assets. Consequently, they have interest in situations that could abruptly turn very positive or very negative. The clear objective of all these investors is to make money. The romance of the industry gets their attention but their business is making a profit.”
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