Northern Sky Research

Vizada Acquisition Prepares Fighting Lines for Next MSS Battleground

Sep 28th, 2011 by Claude Rousseau   More from this Analyst | Profile

When EADS Astrium announced on August 1 they had purchased Vizada Networks for $960 million, the satellite world was puzzled: why would a satellite manufacturer and mostly government-focused fixed satellite service (FSS) provider buy a mobility centric-business like Vizada?  With the Global Xpress contract for three Inmarsat-5 satellites going to rival Boeing, is this deal a way for EADS to get back ‘lost’ revenues?  As economic conditions continue to be mediocre at best, is EADS just looking to diversify revenue streams?  Whatever the motivation, the EADS acquisition of Vizada Networks begins the saber rattling in the next battle of Ka-band mobility.

NSR mentioned in its Mobile Satellite Services, 7th Edition report that the wave of consolidation in the mobile satellite industry, especially as companies move towards end-users, would continue in the near-term.   The aim of these mergers and acquisitions is usually to gain a bigger piece of the MSS pie or diversify in or out of a particular market.  For EADS, it is quite likely hedging against expected delays and cutback in its strong government and military market.  Furthermore, as confidence in the key high-end maritime market is reaching an all time low, the time was right for Vizada, which serves over 1,000 VSAT users through Marlink, to seek a deep pocketed company to navigate the rough seas ahead.

Digging deeper into the EADS numbers, the acquisition also fits into its strategy to grow service revenues and to limit its Airbus subsidiary’s inconsistent revenues, which now amount to 66% of the total. This year alone, EADS has been on the acquisition trail to the tune of $1.5 B, and with $11 B in cash and liquidities, Vizada is almost pocket change.  Also at 10 times the 2011 EBITDA margins, it is on par with other similar deals (CapRock’s purchase by Harris Corporation comes to mind) in the space.

Vizada’s performance since 2006 is satisfactory by all standards, even if it is no secret that its new distribution agreement signed in 2010 with Inmarsat has cut back earnings.  It has a wide array of MSS services that can add nicely to Astrium’s current government and military offering, including on forthcoming Ka-band satellites.  But even if Vizada seems like a good fit financially for that price, what does it mean to the MSS sector going forward?

It is quite likely that the underlying reason for the purchase is to ‘own’ (as Inmarsat did with ShipEquip) a base of customers that will serve as anchor clients to a new breed of Ka-band satellites services.  Astrium has been testing military Ka-band frequencies on the Hylas-1 FSS satellite with tactical and Comms on The Move (COTM) terminals and helps Yahsat (another Ka-band FSS operator) with its military Ka-band payload.  Building on this experience, gaining a separate entry point into the mobility market for its Ka-band business could bring major benefits to EADS.

Bottom Line

Many established players are now involved in all facets of the mobility market, not just on the FSS side but also on the MSS side.   This acquisition signals the desire of EADS Astrium to be present on both sides of the business and across a majority of segments.  It also means sabres are rattling for the next MSS battle, which truly started when Inmarsat bought Stratos to get closer to subscribers.  These battles are quite likely to be exacerbated when Ka-band mobility services come into play in 2014 onwards.

Information for this article was extracted from NSR's report Mobile Satellite Services, 7th Edition