Satellite operator Inmarsat began bookbuilding last Wednesday, June 1, for its £380m flotation in London, announcing a price range of 215p–245p and confirming that the deal would be almost entirely primary. Inmarsat’s main shareholder is the Grapeclose consortium, comprising private equity firms Apax Partners and Permira, which bought Inmarsat in December 2003 for around US$1.5bn.
Based on the midpoint of the price range and Inmarsat’s stated target of raising US$690m from the deal (the company’s accounting is in dollars rather than sterling), the IPO will involve the issue of about 165m new shares. There is a greenshoe of up to 10% of the deal, which is the only secondary portion of the IPO.
Pricing may be announced on June 17, with the stock trading from June 22. The free-float will be just under 40%, with Grapeclose diluted from 51.7% to around 30%.
The deal has attracted a lot of attention in its preparatory stages, and not just because of the long, drawn-out competitive process that resulted in the appointment of four bookrunners – JP Morgan Cazenove, Morgan Stanley, Lehman Brothers and Merrill Lynch.
The sector has seen a number of high-profile deals recently, from the recap by the private equity owners of Eutelsat to the difficult debuts in the US of companies such as PanAmSat and New Skies Satellites Holdings. Private equity seller KKR completed the US$900m IPO of PanAmSat in March, but the shares were priced below the indicative range and then traded down. New Skies suffered a similar fate when it was floated in a US$196m deal in May by Blackstone Group, but both stocks have now climbed above issue price.
Bankers argue that Inmarsat’s business – which is almost 100% mobile satellite communications – can provide more growth than the fixed-line satellite sector. Mobile satellite communication revenues increased by 7% in Q1 2005 compared with the same quarter in 2004. Ebitda rose by 17.3% to US$83.9m. For the period until 2010, analysts predict compound annual growth rates approaching 30% for Inmarsat. In addition, some 70% of its revenues are derived from data, a higher growth segment than voice.
Inmarsat has a fleet of 10 geostationary satellites, and has recently started its fourth generation of satellites. The first unit was launched earlier this year and the second will be launched at the end of 2005 or early in 2006. A third may be launched later.
“This is a relatively unusual investment story because of the very long investment cycle of 10 to 15 years,” said a banker. “The company has done the vast majority of the capex needed for the fourth generation satellites, and the next generation is probably not until 2014 or so.”
The long period with little capex means there is very strong visibility on cashflow, and consequently on dividends. The company’s policy will be to pay a minimum of 50% of free cashflow as dividends, which would equate to a yield of 6%–6.5% at the bottom of the IPO price range and based on 2005 estimates. That is comfortably above SES Global’s yield of approximately 4% but some way below PanAmSat’s 8%. Bankers said this was still attractive when combined with the high growth prospects of Inmarsat.