Further Consolidation Among Operators Is Ahead
Last week’s announcement that Intelsat would be sold to a group of four private equity investment firms marks the third acquisition of a satellite operator by such buyers so far this year. PanAmSat and New Skies Satellites N.V. [NSK] announced their sales to financial buyers earlier this year.
Further deals are ahead but they may not involve the purchase of any more global operators for the rest of this year. What is likely to happen sooner or later is that large satellite operators, including those recently sold to financial buyers, will make strategic acquisitions of regional operators that are unable to offer the global, end-to-end connectivity that customers increasingly seek.
Conny Kullman, Intelsat’s CEO, told Satellite News in an exclusive interview last week that Intelsat could be combined with other operators in the future. Indeed, the proposed new owners of the company that hope to close their transaction by year-end explained that they would be able to offer “four pocketbooks” rather than just one, he said.
Acquisitions require the financial wherewithal to pursue them and Intelsat certainly would have access to deep pockets capable of supporting further consolidation. With 11 to 12 years of life remaining on nearly all of Intelsat’s in-orbit satellites, the company’s huge capital expenditures of the past few years are completed and its financial resources could be used instead to purchase operators of varying sizes.
“I think that the sheer fact they (private equity firms) are investing will drive consolidation even harder,” Kullman said. “I can see our owners and the owners of other assets putting them together.”
Global companies such as Intelsat could combine with each other, as well as buy small operators.
Kullman identified four ways for consolidation to occur. One method to make a strategic acquisition of another operator’s plum assets the way that Intelsat earlier this year acquired the six satellites in the North American fleet of Loral Skynet.
A second approach to consolidation would be for an operator to poach on the customers of a rival that might have a satellite coming to the end of its useful life. Such a situation might involve the expiration of contracts that would allow customers to sign with another operator.
A third method of consolation would be for existing operators to forge partnerships with companies already operating in closely regulated, growth markets such as India and China, Kullman said. An example of that strategy is Intelsat’s relationships with companies that have market access in countries where Intelsat wants to operate. Sinosat, a Chinese satellite operator, acquired rights to use six transponders on the Intelsat APR-3 satellite several years ago at 85 degrees E. As part of the arrangement, Sinosat acquired rights to use two C-band transponders on a different Intelsat satellite at 178 degrees E. In turn, Intelsat has gained access to the Chinese market, Kullman said.
A fourth way toward industry consolidation is for financial buyers to acquire operators, Kullman said.
“These [financial] guys like our platform and they know we have flexibility in our fleet to move satellites around,” Kullman said. Intelsat designed its Ku-band spot beams to be re-pointed, if needed. Other operators cannot match that flexibility, Kullman said.
As private equity firms, Intelsat’s new owners, London-based Apax Partners and Permira, as well as New York-based Apollo and Chicago-based Madison Dearborn Partners, tend to view businesses with the same disciplined approach to bottom-line performance.
Jim Perry, managing director of Chicago-based Madison Dearborn Partners, said Intelsat was purchased as a platform that could “stand-alone” but he is not assuming the company will remain in its current form.
“The economics are such that it is likely we will have combinations,” Perry told me during an exclusive interview last week. “Some interesting consolidation opportunities exist.”
Industry executives have been talking about consolidation occurring for years but it largely has been on hold until this year, with rare exceptions. As financial investors close purchases at PanAmSat, New Skies and Intelsat, the consolidation movement is about to gain momentum.
Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at firstname.lastname@example.org.