Satellite company Inmarsat will be promoted to the FTSE 100, it was announced this week. But could the group celebrate with a $200m plus deal.
Reports have surfaced that US based satellite communications group KVH Industries could be a target for a potential suitor, with Inmarsat suggested as a possible predator. Jefferies said a deal had attractions but shareholders might prefer to see revenues from its Global Xpress high-speed broadband network - delayed because of launch problems with Proton rockets - to start flooding in before the company did any deals.
Analyst Giles Thorne said:
We note some speculation that KVH could be an M&A target, and that Inmarsat is the potential suitor. Such a deal has strategic logic and meaningful synergies, but we’d imagine investors would see it as opportunistic rather than imperative. They’d probably prefer to see GX revenue finally hitting the P&L (and leverage coming down) before meaningful M&A is considered.
In more detail, Jefferies said:
We now note two occasions where the US-listed maritime VSAT operator, KVH , has been mentioned as a potential acquisition target. Firstly, in a SpaceNews article on 22 May and then in a blog posting overnight on the website of the mobile satcom consultancy, TMF Associates. There is an element of internal-referencing here (the latter refers to the SpaceNews article) but in the blog posting, Inmarsat is explicitly cited as the potential acquirer. We see both sources as credible enough to warrant further consideration...The current equity market cap [of KVH] is $200m and KVH has $20m of net debt.
Inmarsat has a good track record of using M&A to drive scale and secure channels to market. We see similar conditions here: a KVH acquisition would drive material scale in maritime VSAT, a market that Inmarsat was historically locked out of but with the Ship Equip / Global Wireless acquisitions and the launches of Xpresslink / Global Xpress is now a challenger in (and growing share market rapidly).
We’re not sure investors would be particularly enamoured with the idea of Inmarsat doing a $200m plus deal at this point. Leverage is peaking this year and we’re yet to see GX revenue land on the P&L (though mostly due to the series of Proton delays). Previous deals were about getting an overnight distribution footprint (Ship Equip, Globe Wireless, Segovia) in key markets - we would now argue that Inmarsat has enough distribution clout in those markets where it needs it. A KVH move feels strategically opportunistic rather than imperative.
Inmarsat - which will replace temporary power supply business Aggreko in the leading index - is currently down 3p at £10.03.
