Not to be outdone by other private equity firms targeting the satellite space, The Blackstone Group agreed to takeover New Skies Satellites, based in the The Hague, Netherlands. The purchase price, valuing the company at $956 million, is approximately $7.96 per fully diluted share.
New Skies is publicly traded on the AEX and New York Stock Exchange under ticker symbol NSK. The satellite communications company offers video, data, voice and Internet broadcasting services and currently has five satellites in orbit.
Private equity’s presence has been ubiquitous in satellites over the past year, with Kohlberg Kravis Roberts & Co., Permira, and Apax Partners all participating in buyouts in the industry. Madison Dearborn, Apollo Advisors, Bain Capital, Thomas H. Lee Partners and Texas Pacific Group have also been turning stones over in the space as well, according to reports.
KKR made the biggest splash with its $3.5 billion acquisition of PanAmSat, a deal that came four months after Permira and Apax Partners won the auction for Inmarsat with a $1.54 billion bid. Eutelsat, the No. 4 player among the satellite companies, is also 75% controlled by financial sponsors including Texas Pacific Group and Spectrum Equity Partners.
Much like the deluge of yellow-pages deals two years ago, private equity interest in the satellite space is being driven by the strong and stable free-cash flows inherent in these businesses. Cowen & Co., in a research report issued to its banking clients, added that the industry is also nearing the end of its capital expenditure cycle, which will lead to additional free-cash flow expansion and allow firms to delever the businesses over time. The bank noted, “Participation by financial investors is driven by prospects of relatively slow top line growth over the next few years, but dramatic free cash flow expansion as the companies complete their capex cycles.”
The sale of New Skies actually got started as the company looked over a potential merger with PanAmSat, which would have required private equity backing. However, PanAmSat’s goal in picking a buyer was speed, and a deal between strategics would have required more time than the company wanted to spend in a review process. New Skies CEO Dan Goldberg, confirmed in a conference call that company had participated in the auction for PanAmSat, and during that process, New Skies held discussions with “a number of private equity firms.” He added that when it was New Skies’ turn to put itself on the block, “We cast a wide net through the private equity community, and also welcomed whatever strategic buyers there might be.”
To finance the acquisition, Deutsche Bank and ABN AMRO have been tapped to provide the debt. The purchase price of $956 million represents a discount to New Skies’ book value at the end of 2003, but based on EBITDA multiple, is at the high end compared to other deals completed. Commenting on that, Goldberg said, “If you look at the other transactions that have recently been concluded… we think [our deal represents] a better multiple [at 7.6x EBITDA] than has been achieved in some of the other transactions.” The sale of PanAmSat generated a multiple of 7.2x EBITDA, while the Permira and Apax Partner acquisition of Inmarsat yielded a 6.2x EBITDA multiple.
However, despite the higher multiple, some banks have expressed concerns over New Skies’ spot in the satellites space. Prior to the sale, ABN AMRO told its clients in a research note, “We believe a higher expected IRR [from a financial buyer] is warranted for New Skies given the relatively higher risk associated with New Skies’ business compared to PanAmSat.” The bank said, “Among other things, New Skies has thinner margins, shorter contracts, faces tougher competition in voice and data and has less redundancy in its fleet.”
Going forward, private equity’s sprint into the satellite arena is not expected to end with the sale of New Skies. Intelsat signaled its availability when it abandoned plans for an initial public offering. Morgan Stanley and Merrill Lynch & Co. have been hired to shop the satellite operator, and early indications point to a likely asking price of between $3.5 billion and $5 billion, according to reports. Many of the same firms that looked at previous offerings in the space are expected to show interest again, with names like Madison Dearborn, Apollo, Thomas H. Lee, Bain and Quadrangle Group among those being identified as potential bidders.