New Financial Investors Bring Discipline
The top officers of large FSS operators who spoke at Euroconsult’s 8th World Summit For Satellite Financing in Paris voiced no surprise with forecasts of much tougher capital- expenditure parameters for companies recently acquired by PE firms. PanAmSat CEO Joe Wright, who will have KKR as his company’s new owner, does not see his company facing a competitive disadvantage.
“We have tended to be risk averse,” Wright said. “We will downsize the satellites to the market need. In our industry, that has not been a tradition. We are going the way PE firms would like us to manage anyway.”
He continued, “We are behind the capex curve for a large extent. We should be managing for free cash flow. I think the new influence will be good for the industry. You should design your satellites for the near future.”
Wright thinks the trend of PE firms investing in the industry is a good thing. “I think it is going to be much more efficient to have PE firms at this point in time,” Wright said. “Our industry should not have 38 operators. We can create a much more efficient industry. I don’t call it consolidation; I call it rationalization. You are going to have some flagship operators.” Expect three or four global fleets, Wright said, with the new buyers staying away from a “slash and burn” mentality.
While Wright was arguing strongly that PE firms were a good thing, Romain Bausch, SES Global’s CEO, said SES could exploit a situation where other operators may have far more demanding shareholders when it comes to capex.
“The presentations [by the financial experts earlier in the day] confirmed what the PE firms might do,” he said. “We have prepared to go with a balanced approach with FCF and investing in growth opportunities. We can have a more balanced use of our cash flow, which will be different from companies owned by PE firms. We are not displeased by this situation [of] the PE firms coming in.”
Conny Kullman, Intelsat’s CEO, also confirmed that an IPO still was a possibility, even though a consortium of PE firms recently announced a deal to acquire Intelsat. “If the Orbit legislation requires us to do an IPO, we would do an IPO,” he said. “The deal would not unwind as a result.”
Intriguingly, two PE firms — Permira and Apax Partners — both have stakes in Intelsat and Inmarsat, although Ramin Khadem, Inmarsat’s outgoing CFO, said too much could be read into that situation.
“I don’t see a natural synergy between Inmarsat and Intelsat. We are in the mobile market, they deal with the Internet backbone, etc.,” he explained. “I don’t think there are natural synergies between the two. Apax and Permira know what they are doing. They have bought into what they are doing.”
Consolidation driven by PE firms is coming. According to Bausch, “We think the next round of global consolidation will come in three to five years. We feel there will be limited consolidation activities in Asia and Latin America; there will be swaps. I think the companies have to find new growth opportunities.”
While the impact of PE firms in the sector provoked some lively debate, particularly between Bausch and Wright, operators were talking about the major growth opportunities. Giuliano Berretta, Eutelsat’s CEO, believes there will be further co-operation between operators as they look to fill gaps in their coverage. “Our problem is North America; that is [an area] we might look to do with the help of Hispasat or others,” he said. “I think cooperation between operators is very important. We are already providing capacity to G2.”
Offering his take on growth opportunities, Dan Goldberg, CEO of New Skies Satellites, commented, “We are seeing a fair amount of business out there. It is our expectation we will see reasonable growth in the business. The average price per transponder is going down.”
He continued, “There are two metrics you look for: One is the volume of sales and the other is price. We have some price compression over the past two years. I would say it is stabilizing in some markets. The bad news is that a number of markets are still suffering from overcapacity.”
(Joseph Wright, PanAmSat, 203/210-8606; Dan Goldberg, New Skies, 31 (0) 70306 41 00; Mark Roberts, SES Global, (352) 710 725 490; Vanessa O’Connor, Eutelsat, 33 1 53 98 47 57)