Inmarsat IPO goes into orbit

Inmarsat Group, the satellite company owned by Apax and Permira, has raised £355m following its IPO on the London Stock Exchange, slightly less than the £380m it hoped to raise when the intention to float was announced in early June.

Neither Apax nor Permira have sold shares in the listing as they are subject to a six month lock-in period. The shares were priced at 245 pence per share, right at the top of the indicative price range of 215 pence and 245 pence, and rose to 286.25 pence by the end of the day’s trading. The shares were more than 10 times subscribed. The float valued the company at £1.32bn, and the money raised will be used to refinance part of the company’s debt.

Apax Europe V and Permira Europe III took a 52% in Inmarsat, which is headquartered in the UK, in December 2003 for just over £1bn.

Inmarsat fared better than satellite rivals PanAmSat (US) and New Skies Satellites (Netherlands) when they floated in May, with both priced at the lower end of their indicative ranges. Both are now trading above their issue price.

The success of the IPO will encourage Eutelsat, a French satellite operator, which is planning a Paris float in Q3 2005. Reports have said it could achieve a market valuation of around E2bn. Eutelsat is backed by Texas Pacific, Spectrum Equity Investors, Eurazeo and Goldman Sachs Capital Partners.

The satellite industry has become a popular one for private equity. As well as Eutelsat and Inmarsat both backed by private equity firms, Intelsat (US) is owned by Apax, Apollo, Madison Dearborn Partners and Permira; PanAmSat was backed by KKR, Carlyle and Providence Equity Partners; and New Skies Satellites was owned by Blackstone.

The popularity of satellite companies is one of the fronts in the telecoms sector revival. The growth of satellite television, broadband Internet usage and the increasing use of mobile phones means that the industry is one which is capable of producing solid, cash generating businesses. Most of the satellites now in operation were launched several years ago, so private equity firms can focus on restructuring and improving the business rather than sending up new satellites, which can cost around US$250m each. The fact that Inmarsat, PanAmSat, and New Skies have been bought by LBO firms and listed within the last 18 months has provoked some scepticism over whether the satellite industry is really going to benefit from private equity ownership. The argument is that the firms are in there to take advantage of the growing demand but exit before it’s time to pump in any new money, for more satellites for example (although with many satellites running at 60% capacity, this is open to debate).

With the floatation of three of the world’s largest satellite operators, industry insiders are predicting private equity firms will be looking at regional operators, such as SatMex of Mexico, to which Carlyle has already been linked. Such a development would likely lead to a consolidation within the industry, although funds could be put off from making such acquisitions due to the different business model of the regional operators. SatMex for example has been in severe financial difficulties and in May creditors of SatMex filed an involuntary bankruptcy petition.