Apax Vobiscum

Inmarsat started off in 1979 as the International Maritime Satellite Organization (INMARSAT), a non-profit intergovernmental organisation created to establish and operate a satellite communications network for maritime use. They were funded by a group of 28 mainly maritime nations. In 1999, this rose to 86 countries and at the same time the Global Maritime Distress and Safety System (GMDSS) was introduced which allows safety, distress, navigation and weather broadcasts to be sent and received by any vessel – this is quite a convoluted history and not to be described here. Inmarsat and its array of geostationary orbit satellites took care of this.

In the mid to late 1990s, funding for new satellites became an issue. The original satellites used had been launched by the US Navy and by the European Space Agency (ESA). The life expectancy of a satellite in geostationary orbit is almost the same as for a domestic fridge/freezer, about 15-17 years, so a regular input of a large amount of capital is required. In 1998, it was agreed that Inmarsat would be ‘privatised’ although obligations for maintaining the system for public (maritime and avionic) safety were imposed. Inmarsat was the first international satellite organisation to be privatised. Originally it was owned as a private company by the signatory governments but APAX and Permira (both global investment firms) bought a majority stake in 2003 before floating it in 2005. The company was listed on the London Stock Exchange in 2005

Since then Inmarsat has had its ups and downs. It was added to the FTSE 100 in 2008 and deleted in 2011, in again in 2015 and out again in 2016. In mid-2018, a rival satellite operator put in a bid to buy Inmarsat for 532p per share but that fell through. It was revealed this week that a consortium led by APAX is considering a bid for the company offering 550p per share, valuing the company at roughly £2.5 billion (US$3.3 billion).

What are the upsides of such an acquisition?

APAX is familiar with the business as they took Inmarsat public initially and have had stakes in Intelsat, Vizada (ex France Télécom Mobile Satellite Communications) and Telenor. Its French partner currently owns Marlink, the world’s largest maritime supplier of satellite communications including Mobile Satellite Services (MSS) and Very Small Aperture Terminals (VSAT) services. Conveniently, it is one of Inmarsat’s biggest customers. Given Inmarsat’s already established penchant for vertical integration, this would doubtless be a boon.

A benefit of private ownership is the increase in focus as the ‘owners’ have more skin in the game and there is considerably less barracking from disgruntled shareholders should there be a blip in progress. Private companies can make decisions far more quickly than publically listed companies and, in general, are far more efficient. Inmarsat has acquired a number of down-stream service suppliers to the maritime industry that could be consolidated into a more dynamic supply force, bearing in mind that the UK Monopolies Commission (or any other country’s regulatory body) may have reservations about the reduction in competition.

A study in 2015 (Private versus public corporate ownership: Implications for future profitability – Kristian D. Allee – Assistant Professor University of Wisconsin, Brad A. Badertscher – Associate Professor University of Notre Dame and Teri Lombardi Yohn – Professor Indiana University) concluded that private companies are more profitable which they attribute to short-term focus in publicly-listed companies that have dividends and consistent profits to worry about.

This brings out another upside which is the ability of a privately held company to seriously consider long-term strategy goals. Changes in technology and the weathering (yes, space-weathering is a thing) means that Inmarsat has to have a rolling program for satellite upgrades and replacement and most programs range around 10-15 years long. Should the idea of an Internet in space (which Valour Consultancy particularly admires) become popular and competitors, or even Inmarsat, initiate a synergy between Geo-Stationary satellite and Low Earth Orbit (LEO) networks, then, as a private company, Inmarsat can quickly join in.

What are the downsides of such an acquisition?

Because Inmarsat is in the top 250 companies in the UK, raising capital for future investment should not be too much of a problem but it is considerably easier for a publicly listed company to arrange external finance than it is for private company, even one backed by such a large consortium of wealthy players.
In Inmarsat’s case company valuation and profile are not really an issue but being owned by a consortium of investment companies and pension funds does bring its own risks. No matter how much they may claim that their strategy is long-term, the nature of such beasts can be fickle. APAX has experience in the industry but also has experience in selling such companies on.

Finally there is the thorny issue of obligation and regulation. Inmarsat provides GMDSS services and these cannot be allowed to fail. If, for some reason, as a private company, Inmarsat was to run into trouble, then political entities would have to step in to save it and that always causes a backlash from the general public. Or another satellite company beginning with I would see some significant upsides.

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