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Strictly Come Dancing, Viasat’s New Dance Partner, Inmarsat

It was announced this week that American satellite company, Viasat, would acquire its British rival, Inmarsat, in a deal worth $7.3 billion USD. This represents a big jump from the $6 billion Inmarsat was sold for in 2019 (completed in January 2020) by a consortium of Apax Partners, Warburg Pincus and others.

Upon the announcement of the deal, Viasat’s share price fell sharply, highlighting the market’s surprise at the new partnership and maybe, the price too. For context, a majority share of Marlink Group (largest retail maritime service provider) was purchased for $1.4 billion by Providence, a private equity firm, earlier this year.

2021 has certainly been an interesting year within the satellite industry with billionaires being slung into space almost as quickly as LEO satellites. To recap, Marlink acquired ITC Global (undisclosed fee), before the hunter became the hunted and was itself snapped up by Providence. And before adding Inmarsat to its collection, Viasat purchased RigNet for $222 million in April 2021. Without wanting to blow my own trumpet, I am proud to say that I foresaw lots of M&A activity taking place this year in my February 2021 blog (https://valourconsultancy.com/market-roundup-on-maritime-connectivity-acquisitions/) and believe that we will see two further notable deals before the lights in the space disco are turned off at the end of the year.

Valour’s Maritime Take

The combination of Viasat and Inmarsat makes so much sense for both companies. One of the most notable trends in the satellite industry is the reduction in costs associated with launching a satellite. Conversely, the hyper competitive market makes profitability more challenging. Viasat has been eager to return to the commercial maritime connectivity and battling with incumbents would doubtless have been a brutal task. The takeover of Inmarsat makes the task much more fluid.

Inmarsat has long been perceived as a good example of how a satellite company can develop different revenue streams aside from the industry’s traditional base of broadcast media. Its strong business operations in maritime, aviation (commercial and BGA) and government make it a good fit for Viasat. It also offers safety services in mobility across its L-band services. Additionally, it’s broad geographical spread of customers makes its appealing (in comparison, 92% of Viasat’s revenues are from within the US). The attraction of Inmarsat is no secret, with both Eutelsat and EchoStar previously eyeing up the British satellite company as suitors. Foxtrot or tango?

Viasat

Firstly, Viasat will provide Inmarsat with much more capacity and bandwidth, particularly when ViaSat 3 comes fully online, helping the latter meet its increasingly data hungry seafarer vessels. From March 2020 to May 2021, Inmarsat has reported average data consumption per vessel has tripled from 3GB per day, to over 9GB.

Furthermore, Viasat will cover Inmarsat’s high levels of net debt compared to revenues, estimated at $3.4 billion to $1.3 billion. The inclusion of Viasat covering a $200 million break fee if the deal goes south highlights the company’s potency in this department.

Inmarsat

Inmarsat is a household name in the maritime connectivity sphere and holds a similar reputation to IBM in computing.
Its maritime geographical operations are worldwide and the company has a strong presence in most of the key applications bar the passenger segment. With FX, it offers one of the fastest growing VSAT services and currently boasts a customer base for the solution of around 11,400 vessels. Inmarsat is also building its IoT services via Fleet Data, in addition to a number of other background services.

Summary

Valour Consultancy sees this combination as a strong move for two big GEO satellite operators. We’re a little surprised there isn’t a play involving LEO from the dance partners, however, Inmarsat does plan to launch several hundred LEO satellites in the coming years for its ORCHESTRA hybrid service and Viasat in the next four to five years. The key for Inmarsat’s maritime service will be maximising upon its large customer base to increase average vessel revenues over multiple services rather than simply selling airtime (capacity and bandwidth). Also, we believe that with Viasat the principal dancer, it should not interfere too greatly with Inmarsat’s value-added reseller network.
Source: By Joshua, Valour Consultancy

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