Will MSS consolidation start with LDR?

Posted in Globalstar, Inmarsat, Iridium, LDR, LightSquared, Operators, Orbcomm, Services at 12:37 pm by timfarrar

Inmarsat revealed in its 2009Q3 results that it is in negotiations to acquire a satellite services provider that generated more than $50 million in revenue in 2008, is currently profitable and will have no material indebtedness at closing, in a purchase that would cost less than $150M. There are very few companies in the MSS space that fit the profile given by Inmarsat, but one that does is SkyBitz, which Inmarsat noted in its June 2009 investor day presentation was one of the “key competitors” in the satellite Low Data Rate (LDR) market. Inmarsat also noted that one of its objectives in investing in SkyWave was to “stimulate consolidation in the [satellite LDR] market”.

Indeed, back in July we speculated that a possible resolution to the fight between Inmarsat and SkyBitz over what SkyBitz characterized as “restrictive trade covenants included by Inmarsat” in its SkyWave investment would be for Inmarsat to facilitate a buyout of SkyBitz. An Inmarsat acquisition of SkyBitz would have the added benefit (for Inmarsat) of taking out another of SkyTerra’s key LDR customers, in addition to the 50K GlobalWave customers who were moved from SkyTerra’s satellites to Inmarsat’s I4 satellite network in October 2009.

***We’ve now been reliably informed that Inmarsat’s current acquisition target isn’t SkyBitz. We understand it is most likely a system integrator focused on government business. We don’t have a name at this point, but one company in this area that would fit the disclosed parameters is Segovia. There are likely several other similar possibilities as well.***

We’ve lamented previously that no-one ever seems to leave the MSS industry, but if Inmarsat does eventually follow through on its stated ambitions to stimulate consolidation in the LDR market, then perhaps that sector could be one place where much needed MSS industry consolidation finally begins.

In that context, with Orbcomm having yet another disappointing quarter, we wonder if now is the time for a competitor to make a bid for Orbcomm. After all, the company expects to settle the $50M insurance claim for the failure of all of its QuickLaunch satellites “imminently”, at which point Orbcomm will not have spent too much on its second generation constellation and will still have a reasonable amount of cash on its balance sheet. That might be particularly attractive to Globalstar or Iridium, either of which would benefit greatly from moving Orbcomm’s subscribers over to their own networks (albeit with significant costs for terminal upgrades), and could allay investor concerns about whether Orbcomm can fund the rest of its second generation satellite constellation (which would be exacerbated if the company fails to receive something close to $50M from its insurance claim in the near future). With its partners postponing some new service offerings until messaging delays are resolved, Orbcomm will need these new satellites sooner rather than later if it to build a sustainable business and generate the rapid growth that has been promised ever since the company’s IPO in 2006, but to date has failed to materialize.

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