Inmarsat Acquires Segovia To Boost Government Business

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PARIS — Mobile satellite operator Inmarsat announced Nov. 23 it is purchasing communications services provider Segovia Inc. of the United States for $110 million in cash in a transaction that will bolster London-based Inmarsat’s position in U.S. government markets.

Herndon, Va.-based Segovia, which was founded in 2002, provides integrated communications services to the U.S. Department of Defense and other U.S. and allied government agencies through its terrestrial and satellite network.

Segovia Chief Executive Michael Wheeler said in a Nov. 24 interview that his company had hired investment banker Lazard this year to explore strategic alternatives and had received other offers in addition to the Inmarsat bid.

The company is already a customer of Inmarsat’s L-band mobile satellite services, and also operates a network of very small aperture terminal (VSAT) satellite Earth stations for the U.S. Defense Department. Segovia leases capacity on 17 commercial geostationary-orbiting satellites operating in Ku- and C-band to provide global reach for its government customers.

In its announcement of the acquisition, Inmarsat said Segovia reported a net profit of $18 million on revenue of $67 million for 2008. Wheeler referred questions about Segovia’s backlog and other financial metrics to Inmarsat, but said 2009 is shaping up to be even better than 2008, which represented a substantial revenue increase over 2007.

The revenue in 2008, he said, was not due to any exceptional items and will be followed by a “significant” increase in 2009.

Inmarsat officials did not respond to requests for detailed information on Segovia’s past financial performance.

Wheeler said 80 percent of Segovia’s business is with the U.S. Defense Department. Much of the work is performed under multiyear contracts that, because of U.S. government budget cycles, need to be renewed each year.

“Most of our businesses are still fairly early in their adoption of broadband communications into their operations,” Wheeler said. The Defense Department, he said, “is still rolling out service to green fields. The requirements for new systems, particularly for ISR [intelligence, surveillance and reconnaissance], have bandwidth demands that exceed” what the U.S. military can provide with its dedicated assets even after accounting for high-throughput military communications satellites now being built and deployed.

He said the visibility of the company’s near-term revenue permits it to sign multiyear leases for fixed satellite services capacity, which is three-quarters Ku-band, one-quarter C-band.

Segovia’s business with Inmarsat amounted to about $4 million in 2008, Wheeler said. The company also has begun providing service from Inmarsat competitor Iridium Communications.

Inmarsat said the $110 million purchase price, which it will finance from existing cash reserves, may be increased depending on Segovia’s performance in the next three years. The acquisition is expected to close in early 2010.

“Segovia is ideally positioned to support the U.S. [Defense Department’s] requirements to deploy secure networks rapidly using combinations of satellite and terrestrial facilities wherever in the world they are required,” Inmarsat Chief Executive Andrew Sukawaty said in a Nov. 23 statement. “With Segovia’s secure global communications infrastructure and its highly qualified and security-cleared staff, we will further strengthen our relationships with key government customers across land, maritime and aeronautical environments, and bring enhanced services to the government sector generally.”

Wheeler said Inmarsat has a global presence and that Segovia hopes to use it to expand into new markets. While most of Segovia’s revenue is from the United States, the company also has contracts with the NATO alliance and with individual European governments, and hopes to expand into the Pacific region.

Segovia will operate as an independent division of Bethesda, Md.-based Stratos Global Corp., a large distributor of Inmarsat services that was purchased by Inmarsat in April.

Reporting its financial results for the three months ending Sept. 30, Stratos said the new distribution agreement Inmarsat signed with Stratos and other Inmarsat distributors “will negatively affect cash flow” in the future. The new agreement reduces the volume discounts Inmarsat gives to its largest distributors, and also opens Inmarsat’s broadband service, called BGAN, to new distributors.

Stratos said it has not yet increased its prices to adjust to the new Inmarsat distribution agreement. Inmarsat services account for about two-thirds of Stratos’ total revenue. Revenue for the three months ending Sept. 30 was $160.1 million, down 4.8 percent over the same period a year earlier. The gross-profit margin, at 26 percent, was down from 28 percent a year ago.