Raymond James Analyst Chris Quilty told Satellite TODAY Insider that he believes further upside is possible if Orbcomm can leverage multiple synergies between the two companies. “These synergies include: selling StarTrak products through Orbcomm’s existing reseller channel; distributing StarTrak’s products into Orbcomm’s international sales channel; converting all of StarTrak’s satellite tracking units to the Orbcomm network; and capitalizing on StarTrak’s strategic relationships,” said Quilty.

            StarTrak provides tracking, monitoring and control services for the refrigerated transport market, as well as complete wireless GPS tracking, monitoring and full command and control of customers’ fleets. Orbcomm announced the $18.5 million StarTrak acquisition in May. The transaction was paid for with $2 million in cash, $3.9 million of assumed debt and a combination of Orbcomm and Alanco shares. StarTrak currently uses Inmarsat-based terminals from SkyWave for the majority of its satellite-based tracking needs. In time, it is expected that Orbcomm will migrate these terminals to its own network.

The StarTrak subsidiary was essentially a break-even business for Alanco, with 2010 full-year revenues of approximately $16 million, including about $9 million of recurring service revenues. Quilty, however, believes the StarTrak business could be profitable to Orbcomm, “if management can successfully consolidate overhead, leverage complementary sales channels and outsource device manufacturing to partners such as Quake Global and Digi International,” he said.

            Raymond James also raised StarTrak’s 2011 second-quarter net subscriber addition forecast by 6,000 to 21,500 due to “inter-company eliminations.” The company had about 25,000 subscribers at the end of 2010.

            According to Quilty, the acquisition was largely positive for both parties, but not without risk. “The one major drawback of the acquisition is that it does create the appearance of channel conflict, as Orbcomm is effectively forward-integrating beyond its traditional wholesale role,” he said. “Somewhat mitigating these concerns, the refrigerated transport vertical is a fairly narrow niche that is dominated by a single systems integrator — StarTrak. That said, it would be incumbent on Orbcomm management to communicate to their channel that the StarTrak acquisition is a ‘one-off,’ and not the start of a broader forward integration strategy.