Orbital Sciences Corporation has acquired the satellite business of General Dynamics in a cash deal worth US$55m. Houlihan Lokey advised Orbital on the transaction.
The unit, Arizona-based General Dynamics Advanced Information Systems, manufactures small…
Orbital Sciences Corporation has acquired the satellite business of General Dynamics in a cash deal worth US$55m. Houlihan Lokey advised Orbital on the transaction.
The unit, Arizona-based General Dynamics Advanced Information Systems, manufactures small and medium-sized satellites. Its main customer base is the governmental and military sector, but it has worked on commercial projects in the past.
“There is a compelling strategic fit between Orbital’s current satellite business and the General Dynamics spacecraft unit in terms of the markets and customers we serve, the types of satellite platforms we design and build, and the highly skilled and experienced engineering, manufacturing and operations professionals we count on to make this possible,” said David Thompson, Orbital’s chairman and chief executive officer. “I am very excited to add the technological know-how and practical experience of the GD satellite team to our company.”
The deal is expected to close in the next four weeks, and GDAIS will be added to Orbital’s yearly financial performance from April onwards. At an investor conference call Orbital CFO Garret Pierce said that this will add US$50m in revenue to orbital’s balance sheet for this year, to rise further in 2011. GDAIS had an order backlog worth US$150m at the end of 2009.
The satellite manufacturing side of GDAIS was boosted by the 2004 acquisition of Spectrum Astro. Between them, Spectrum and GDAIS have built 15 satellites. These included the NASA Fermi/Glasto satellite, the Air Force C/NOFS space weather satellite and, in the commercial sphere, the GeoEye-1 earth observation spacecraft.
This range of customers offers clear synergies for Orbital, as do the nature of the spacecraft and the location of GDAIS’ manufacturing facility in Gilbert, Arizona. Orbital’s own launch vehicle engineering and manufacturing facility lies just ten miles away in Chandler.
The Gilbert facility is cutting edge, having only been completed in 2005. GDAIS currently employs around 1300 people, of which 325 will join Orbital.
GDAIS satellites range from 500kg to 4000kg in weight, which both encompasses and moves beyond the sizes manufactured by Orbital, which specialises in the 500-2500kh range. They tend to primarily be low earth orbit (LEO) spacecraft with a lifespan of between three and seven years.
In the conference call, Thompson said: “These new GDAIS products should more than double Orbital’s addressable market over the next few years.” He put the scale of the increase in context by noting that the addressable market for US manufacturers of small satellites is around US$300-350m per year, while the market for the medium-sized satellites that GDAIS specialises in is worth more than twice as much, at around US$900 to US$950m per year.
Thompson went on to quantify what Orbital would have required to gain access to this mid-sized market. He said: “To evolve our current small satellite platforms up to current medium-sized spacecraft needs would have required a minimum of US$25-30m in R&D investment and would have taken two, two and a half years to complete basic development work.”
This degree of saving is replicated in the acquisition of the Gilbert facility. “It is among the two most modern satellite factories in the world, and certainly the most modern in the US,” said Thompson. “To replicate building such a facility today would cost a lot more than the US$50m it cost originally.”
According to Thompson, the acquisition means that over the next eighteen months, Orbital will now be looking at six or seven government contracts it would either have been previously unable to compete for, or would have been bidding from a weaker position. Although Orbital does not anticipate winning all of these contracts, their combined worth is between US$1.25bn and US$1.5bn.
