FSS Private-Equity Funding Seen Ending
The fixed satellite services industry may be done with the private-equity frenzy once Intelsat’s BC Partners deal closes, Near Earth CEO Hoyt Davidson told a Society of Satellite Professionals International panel Thursday. “There is not much more that you can do except to have the three or four larger players buy the 60 smaller regional players,” Davidson said. Politics and nationalism have complicated efforts to buy out smaller operators, he said. The Telesat-Loral deal recently concluded may be the last for a while, he said.
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The Satmex sale will be revived, Davidson said, adding that he isn’t sure when. Eutelsat needs acquisitions “to catch up with Intelsat and SES,” he said. Other satellite industry sectors still may consolidate, he said. The integrator market is too fragmented, agreed Britt Carina Horncastle, vice president of corporate development for CapRock Communications. And equity firms could be interested in mobile satellite services operators as part of a spectrum play, though recent history hasn’t been kind in this arena, Davidson said. Investment in spectrum plays “hasn’t turned out very well for the private-equity universe,” he said.
“Quality companies like Intelsat” will have private- equity deals funded while smaller startups will have more difficulty, said lawyer Dara Panahy, working with Intelsat on the BC Partners deal. “In the satellite business, as long as you have the assets, the backlog and long-term contracts with good customers, the credit will be there so these deals will get done.”
Even if the satellite industry were ripe for more deals, the private-equity market “has fallen off a cliff” with the subprime mortgage meltdown, Davidson said. “The jitters happened at the time when the market had the worst backlog in history,” said Panahy. The market problems aren’t over, he said, predicting few deals in 2008. “If Citigroup can’t attract a new chief executive officer, there must be a lot of shoes left to drop,” he said.
Most private-equity deals involve debt, but the FSS industry’s leverage exceeds the average, Davidson said. He cited as an example the $16.5 billion Intelsat-BC Partners deal, undergoing FCC review.
Private-equity firms don’t a slash-and-burn philosophy, Panahy said. “There is a balance. Sometimes the austerity and management style of the private-equity firms may not be all that different” from management’s, he said.