Permira puts fleet operator ABS up for sale
SINGAPORE – Fast-growing satellite fleet operator ABS is for sale by its owner, private-equity investor Permira, a sale that has been long expected but that has been slowed by what industry officials said was a difference between Permira’s price floor and prospective buyers’ price ceiling.
Two officials said Permira had wanted $2 billion a year ago but encountered market resistance at about $1.5 billion. Whether either of those numbers holds true in today’s market is unclear.
The sale, if it occurs, will offer a benchmark value for a fixed satellite services operator whose business, while moving toward more video applications, remains largely data-centric at a time when the market is worried about the price collapse of the satellite data business.
Tom Choi, chief executive of Bermuda-based ABS, confirmed that Permira had begun “a process” to find a buyer given that it was about to close the fund in which the ABS ownership is held.
“We are owned by a financial sponsor. They have been a very good partner for our company,” Choi said during during the CASBAA Satellite Industry Forum. “They came in after we had acquired in-orbit satellite capacity from other satellite operators. We had grand ambitions for new satellites. They put I a big chunk of new equity, which gave us the financing to do the ABS-2, ABS-2A and ABS-3A satellites.”
Permira purchased ABS in 2010 for 184 million euros, or about $242 million. The company’s fleet counted just 103 transponders at the time. As of last Dec. 31, the ABS fleet totaled 348 transponders on six satellites, with another 48 scheduled to launch in about two weeks aboard a SpaceX Falcon 9 Full Thrust rocket.
The launch will carry two telecommunications satellites into geostationary transfer orbit, the ABS-2A and the Eutelsast 117 West B. Both are all-electric satellites built by Boeing Space and Intelligence Systems of El Segundo, California.
A similar pair of Boeing all-electric satellites was launched, also owned by ABS and Paris-based Eutelsat, was launched in March 2015. Both have entered service.
“Their fund has reached a time where they need to return the invested capital back to the partners,” Choi said. “It’s only natural they are seeking an exit. It’s just the way financial sponsors are, they’re limited to 5-10 years. So whoever steps up and buys ABS is going to buy a fantastic company.”
ABS does not disclose financial results but has said repeatedly in the past three years that it has seen growth despite the general sluggishness of many of its fixed satellite service provider peers.
Choi has relished his role as the satellite industry’s apostle of doom, saying satellite capacity is far too expensive to survive in today’s market and must slash costs. His deal with Eutelsat – actually conducted with Satmex of Mexico, since purchased by Eutelsat – was hailed at the time as one of the most innovative in the industry. The two companies, by agreeing to a combined four-satellite purchase with Boeing for a new product, concluded the satellite purchase at an attractive price.
By agreeing to launch in pairs aboard Hawthorne, California-based SpaceX’s Falcon 9, each company paid only around $30 million for each launch given the lower launch mass of all-electric satellites.
ABS competitors have often alleged that the company appears to be putting satellite bandwidth on the market for prices that cannot be profitable for anyone, even ABS. Choi has denied this, saying the company has maintained industry-standard profit margins.
At the CASBAA conference here May 30 and the CommunicAsia conference May 31, also held here, Choi said ABS’s growth since the Permira purchase places it in fifth place among global operators in terms of the amount of megahertz of capacity, not including Ka-band, placed into orbit in the past five years.
“That’s in addition to all the other orbital slots that we have filed,” he said. “We must have more orbital slots than the countries of India, Indonesia and China combined with all the filings we have done around the world.”
Choi said the company continue to grow at double-digit rates in the past year and is all but certain to report 20 percent revenue growth in its current fiscal year given its current backlog and expected contract-renewal rates.
In recent months, several publicly traded satellite fleet operators have reported slow growth, especially in their data businesses. The coming launch of multiple high-throughput satellites will only add pressure to satellite bandwidth used for data applications.
Choi said ABS up to now has avoided investment in high-throughput capacity to focus on video growth. Video distribution is still considered satellites’ high ground both in terms of its inherent delivery advantage over terrestrial technologies and the fact that it is still growing in several regions of the world.
“Four years ago video was only 10 percent of our business,” Choi said. “Our U.S. government and data business was 90 percent. In the next fiscal year, the video part of our business is going to be about 45 percent of our total.”
Choi said satellite industry officials have become overly focused on high-throughput capacity and data-centric low-orbiting satellite constellations, whose business viability he has doubted.
“We are not putting enough focus on what satellites cannot be beat at, which is video distribution, which is still growing. It’s growing for us. I am not sure why it is not growing for others. We have launched four DTH [direct-to-home television] platforms in the past year. In the next 12 months we should see another four DTH platforms launch on our satellites.”
ABS ordered an ABS-8 all-electric satellite from Boeing in 2015 only to have the deal stall when the U.S. Export-Import Bank was shut down because of a dispute over its value in the U.S. Congress.
The bank has been returned to service but for months has been waiting for the Congress to confirm a new director. The post’s vacancy means Ex-Im cannot approve new large loans such as those needed for satellite construction or launch-service provision.
Choi has been talking with other satellite builders, including SSL of Palo Alto, Calfornia, whose Canadian ownership gives it access to Canada’s export-credit agency, Export Development Canada.
But Choi said for now ABS would stick with Boeing despite the fact that Ex-Im’s return to full activity does not appear imminent.
“We still rely on Ex-Im to finance our satellites,” Choi said. “We are not at a stage where we could be issuing high-yield bonds or getting bank loans or other types of financing. We are highly focused on procuring satellites as well as launch services out of the U.S. All our satellites that I made decisions on at least were built in the US.
“We are still waiting for ExIm to put their board together, to evaluate our application. It’s not going to happen this summer. It probably will happen sometime in the fourth quarter or early next year. We’ll just have to make what we have [in orbit] last longer.”