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Analysts: RapidEye Bankruptcy Protection Displays Limits of Imagery Market Beyond Government

By | July 5, 2011

      [Satellite News 07-05-11] RapidEye CEO Wolfgang Biedermann filed for Germany’s equivalent of Chapter 11 bankruptcy protection last month after its financial sponsors felt the privately owned imagery firm’s overall debt was too high for the current business, undercutting hopes that commercial demand, alone, could sustain an earth observation company, according to satellite industry analysts.

         Raymond James Analyst Chris Quilty said that while its financial problems are “largely company-specific,” RapidEye’s slower-than-expected growth rate over the past two years highlighted the underdeveloped nature of the commercial imagery market.
         “This same point was demonstrated earlier this year when DigitalGlobe was forced to lower its full-year growth forecast due to disappointing commercial demand,” Quilty told Satellite News. “Assuming that RapidEye can restructure its debt and achieve longer-term profitability, the company will likely need to replace its satellites by 2018. Likely bidders for this work would include MDA Corp. and SSTL, which served as RapidEye’s first-generation prime contractor and satellite builder, respectively.”
         RapidEye was formed in 1998 with an unusual business model compared to its contemporaries in the industry. The company’s executive management elected to pass over the high resolution imagery market for defense and intelligence customers and focus on developing a five-satellite constellation with imaging capabilities targeted to the agricultural, utilities and oil and gas markets.
      The company spent the last few years managing an aggressive global partnership campaign, which successfully expanded its international network. RapidEye then hired Roland Berger Strategy Consultants in September 2010 to help the geospatial solutions provider attract new investors and raise additional capital to expand its business.
         At the time, Biedermann said his company was well equipped with the technical resources necessary for global expansion and had invested its finances in development of new products. “We want to expand our market reach, our investment in new systems and our product development efforts more quickly to take advantage of the business opportunities which present themselves to us,” he said.
         The development plan was supposed to build off of a series of partnership agreements RapidEye collected from various regions. GAF signed on with RapidEye to be its data distributor in Austria and Switzerland in September. In July of last year, RapidEye won a distribution deal in Canada, entering into a strategic alliance with MDA subsidiary Geospatial Services, which has led the development and delivery of RapidEye’s satellite system as its prime contractor. Harris Corp. was then selected as RapidEye’s partner in the United States to supply new product to its North American partners.
         The company also worked to match the 2009 fundraising success from its competitor GeoEye and capitalize on the projected 16 percent commercial data sector sales growth at $3.9 billion by 2018. Euroconsult CEO Pacôme Revillon, however, said the sector’s growth has driven by the government sector that lies just outside of RapidEye’s business model. “Today, government demand accounts for over 80 percent of commercial Earth observation data and service revenue. … Initiatives such as the European Union’s Global Monitoring for Environment and Security will provide further impetus for services usage, as the program is designed to develop operational Earth observation services for use by public entities.”
         RapidEye management hoped that 2010 would be its breakout year – when its operating cash flow would finally exceed its expenses, however, RapidEye finished 2010 with revenues of 11 million euros ($15.9 million), which Biedermann said equated to less than half of the 25 million euros ($36.1 million) level needed to achieve breakeven cash flow.
         The company said it would continue operations through reorganization and expects to emerge from bankruptcy protection with a more realistic debt structure. RapidEye’s investors include Germany’s KfW and Commerzbank and Canada’s Export Development Corp., which provided about half of the 160 million euros ($232 million) that RapidEye used to launch the company.

          Quilty said RapidEye’s investors are willing to renegotiate the terms of its current loans. “RapidEye still maintains a steady business portfolio and five healthy satellites in orbit. The company also has shown it is capable of generating confidence in new investors and has continued to raise capital when it needs it. They do have some room to work with in replacing their constellation satellites. The question is, will the company modify its business model to make it happen?”    

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