Viasat buys Inmarsat for $7.3 Billion, will look to beef up services

Yesterday, the PE owners of the UK's Inmarsat accepted an offer of $7.3 billion from Viasat, its US equivalent, who will now look to absorb its assets and supplement its own services.

Viasat Buys Inmarsat

Since Elon Musk announced his very ambitious Starlink project, satcom has become an exciting space again. Viasat and Inmarsat, though, are veterans of the satcom space. For context, Apple II was the bestselling personal computer when Inmarsat was founded in 1979. Therefore, the purchase represents a paradigm shift in the satcom space.

Two years ago, Inmarsat's PE owners took the firm private, in a $6.1 billion deal. Since then, it had a quiet couple of years, in a period of relative chaos. Viasat's shares went down by 10% when the deal was announced, though. The US-based company will pay Inmarsat's owners $850 million in cash. Also, it will pay $3.1 billion in shares and will assume $3.4 billion in net debt. The risk here is that Viasat now has a net debt-to-earnings ratio of about 5; the satcom company has said that it will bring it down to 4 within two years of closing this deal.

The UK has seen a lot of its companies bought off by foreign entities, and Inmarsat counts just one of a long list. As such, the deal garnered a lot of mainstream media's attention. The Guardian reported that this sale has come shortly after China's Nexperia bought Newport Wafer Fab, a Welsh chipmaker.

Since Inmarsat has been involved in UK's national security, the transaction may take some time before being signed off. Viasat expects to close the deal during the second half of 2022, though.

How Viasat Benefits from the Purchase

Viasat has acquired Inmarsat's L-band service; the latter had been working on improving the service on the same. Aviation, shipping, and the government are some of the key users of this service. Therefore, by buying Inmarsat, Viasat has acquired the technology, assets, and customers.

Viasat thinks that the L-band assets will complement its own Ka-band technology, and will boost its own service. Viasat's Ka-band service goes primarily to provide in-flight connectivity. Apart from that, it supports connectivity services for government bodies, and in some remote areas.

As such, Viasat CEO Mark Dankberg thinks that combining the L-band and the Ka-band technologies will make it easier for them to serve a broader market with more advanced applications.

What the Future Looks Like

The satcom company also has an issue that needs sorting out. Despite its exposure in the aviation industry, Viasat managed to register sales of around $2.3 billion in the last fiscal. However, because of its exceptional operating costs, it only managed a profit of about $17 million. According to the company, the merger will generate about $190 million in cost savings each year. However, that would only represent 9% of Viasat's operating expenses in 2020.

LEO operators represent yet another challenge for the new entity. The young upstarts have claimed a competitive advantage in many key parameters of delivering internet from space; latency being the most obvious one. What's more, along with Starlink, there are multiple projects either underway or in the works. OneWeb has emerged as a real competitor to Starlink, while companies such as Amazon, Samsung, Boeing, and others are looking to start working on their constellations soon.

There's a silver lining though; these LEO constellations can only grow up to a certain extent. The LEO players are talking big numbers for satellites they plan to put in orbit; however, space around earth is, ironically, limited, and there can only be so many satellites around our planet without making it impossible to put any more satellites.