Northern Sky Research

MDA – When Rich & Boxed-In, Buy a (SS/L) Ladder

Jul 2nd, 2012

As of early 2012, despite increasing annual revenues since 2009, MDA was at the end of a cycle.  With less than promising prospects in each of its activities, it that looked like it was boxed into a corner of the market. However, MDA’s recent Space Systems/Loral (SS/L) acquisition opens up that box and could lead it to new markets with much needed capabilities.

On top of losing revenues from its robotics business, MDA saw the Radarsat Constellation Mission (RCM), a promising $CAD 600 million government project, fall asleep.  This illustrates the dependence of MDA revenues on government budgets, which are now in a severe state of turmoil.

In parallel, while geospatial services markets are healthy, MDA’s status as a quasi-satellite operator is jeopardized by Radarsat-1 & -2 retirements around 2015. Without operating the RCM, MDA will become a classical data reseller and value-added-services provider in this business, which is ultra competitive.

And then its satellite manufacturing unit is in the midst of tough times as well.  In the telecommunication market, it was mostly a subsystem provider and any move toward the “integrator” position would have required a lot of resources and time that failed its past incarnation, Spar Aerospace; it would have eventually been another player in an already competitive low-margin segment. And in the EO market, it is competing with both big players (Astrium, Ball Aerospace) and low-end specialized manufacturers (SSTL).

Thus, its growth prospects in its current markets were limited and overly dependent on ever fluctuating government spending, which had become apparent in its revenues.

Following the sale of its property information division, MDA used $500 million (of the $933 million) to buy-back shares and initiated an on-orbit-servicing offering, which was scrapped despite securing an anchor customer.

With this setback but cash on hand, the SS/L acquisition certainly seems to be the right move as it brings MDA a welcomed diversification.  The plus sides are many:

  • An immediate step up in the satcom manufacturing value chain – as an integrator with proven platforms and a sizeable backlog
  • New type of client with more revenues from commercial customers, balancing its traditional government revenues
  • A much-needed geographical expansion into the U.S., which is a ‘must’ for U.S. Government projects and the ‘not-so-open’ U.S. commercial GEO satcom market

Given both companies’ capabilities and markets, the resulting entity’s addressable manufacturing market should average $5.3 billion for the next 10 years.

This acquisition should create economies of scale in the manufacturing processes, and some tax-related savings.  Finally, it could spur new capabilities, such as MDA’s on-orbit-servicing offering, with high-level capabilities in every segment of the market, from manufacturing to the servicing for a large client base in the GEO Satcom space. Consequently, its offering should be technically optimized, reducing servicing-related risks, which is a main constraint.  Furthermore, it will allow MDA to compete for the U.S. Government’s servicing test mission.

Bottom Line

With satellite communications and EO manufacturing capabilities, a geoinformation services business, and an advanced technology capacity, the new MDA will bear some resemblance to Astrium. The latter, along with other manufacturers, should appreciate that this deal brings a new competitor no longer boxed into a corner.