[Satellite News 07-03-12] Stocks in both Canadian essential information solutions provider MacDonald, Dettwiler and Associates (MDA) and satellite manufacturer Space Systems/Loral’s (SS/L) former parent company, Loral, have risen sharply since MDA announced June 27 that it acquired SS/L for $875 million.
On the day of the acquisition, Loral’s stock value jumped 13 percent, with MDA’s stock soaring 28 percent. Raymond James Analyst Chris Quilty called MDA’s move, “bold and potentially transformative,” in a research note issued July 3.
“Taken at face value, the purchase price represents a multiple of 6.4, trailing EBITDA,” said Quilty. “But after adjustments such as tax step-up, pension liability and orbital receivables, the purchase price could more charitably be estimated at a multiple of 4.4, trailing EBITDA.”
MDA’s winning bid for SS/L apparently trumped that of larger vendors, including Lockheed Martin, Orbital Sciences, Astrium, and Thales Alenia Space.
The acquisition transforms MDA into a significant commercial communications entity as it adds SS/L a top global provider of commercial communications satellites to MDA’s portfolio and provides the company with critical mass in the U.S. market.
Following the acquisition, MDA said it would have combined annual revenues of $1.9 billion as of the 2011 calendar year and a combined backlog of $2.8 billion as of March 31, 2012. SS/L will retain its brand name and management team.
MDA President and CEO Daniel Friedmann said the acquisition is expected to provide global opportunities for his company’s future growth in new markets fueled by strong consumer communications needs.
“This is a game changing transaction for our company,” said Friedmann. “With one move, we are bringing together two market leaders to create a unique global communications and information company with a strong commercial focus. Post-acquisition, more than two-thirds of MDA’s total revenues will come from the commercial market.”
Quilty said that investors on both sides of the table clearly seemed to think of the acquisition as a win-win scenario.
“For MDA, the acquisition should be immediately accretive while adding much needed diversification, tax benefits, and the potential for future revenue synergies. On the flip side, cost synergies will likely be minimal, and MDA picks up exposure to the hyper-competitive and cyclical commercial satellite market,” said Quilty.
SS/L also represents an opportunity for MDA to expand into the United States. The company’s assets include a U.S.-based workforce of 3,200 employees and more than one million square feet of facilities.
“SS/L’s business is fundamentally driven by the worldwide demand for television, digital audio, broadband Internet, mobile communications, and voice telephony,” Friedmann added. “Billions of people around the world depend on these services and demand continues to increase. By acquiring one of the major companies that enable these essential communications services, MDA will move immediately to the forefront of this growing business.”
According to Futron’s Satellite Orders Report, SS/L has been awarded more commercial satellite contracts worldwide than any other company since 2005. Its full-year revenues for 2011 were $1.1 billion, with pro-forma operating EBITDA of $153 million.
However, Quilty added that, from a strategic perspective, the acquisition was imperative for MDA. “MDA had become overly dependent on the Canadian government and faced minimal growth prospects in its robotics, radar satellite, and optical satellite markets,” said Quilty. “The acquisition of SS/L instantly establishes MDA as the world’s leading provider of high-power commercial communications satellites and increases MDA’s exposure to new customers and the all-important.”