Paris-based satellite operator Eutelsat is to acquire its Mexican peer Satelites Mexicanos (Satmex) for US$1.142bn. Eutelsat has agreed to pay US$831m in cash for 100% of Satmex’s shares and will pay off its net debt of approximately US$311m. The…
Paris-based satellite operator Eutelsat is to acquire its Mexican peer Satelites Mexicanos (Satmex) for US$1.142bn.
Eutelsat has agreed to pay US$831m in cash for 100% of Satmex’s shares and will pay off its net debt of approximately US$311m. The purchase price represents an acquisition multiple of 9.7 times Satmex’s annual EBITDA, for the period ending 31 March 2013.
The transaction is the result of a relatively quick sales process after Satmex’s majority shareholders, Centerbridge Partners and Monarch Alternative Capital, hired Credit Suisse and Goldman Sachs to sell the company. Eutelsat is understood to have faced competition from both strategic and private equity players.
The acquisition is expected to close by year-end, subject to government and regulatory approvals.
Commenting on the deal, Michel de Rosen, Eutelsat’s CEO, said: “The acquisition of Satmex, together with the order announced yesterday of our satellite for 65° West will make Eutelsat a key operator in vibrant digital markets across Latin America.
“With Satmex’s strategic orbital slots, state of the art fleet and upcoming satellites, Eutelsat is gaining a robust platform from which to access the significant opportunities in this region.
“Via these two strategic steps, we are significantly upscaling our presence in Latin America to complement our footprint in fast-growing markets, and securing future sources of growth and value creation.”
Satmex currently operates three satellites, Satmex-6 (at 113W), Satmex-5 (114.9W) and Satmex-8 (116.8W) that cover 90% of the population of the Americas. The operator has ordered two further satellites, the all-electric Satmex-7 and Satmex-9, from Boeing and these are due to be launched by SpaceX in 2015.
The company has also negotiated options for the procurement of two additional all-electric satellites and SpaceX launches on similarly favourable terms, and it is thought that Eutelsat would be interested in utilising these.
Satmex’s FSS business generated 2012 revenues of US$111.8m and US$89.1m in adjusted EBITDA. The company had a backlog of US$242m as of 31 March 2013.
Satmex also owns and operates Alterna TV, a provider of Hispanic television programming to the US market, which generated revenues of US$14.5m in 2012. It also has a VSAT services provider subsidiary, Enlaces, which it is actively in the process of selling. Enlaces reported 2012 revenues of US$11m and EBITDA of approximately US$300,000.
Eutelsat stated that, while the acquisition will be slightly dilutive to Eutelsat’s EBITDA margin at the outset, it is expected to be accretive to Eutelsat’s EPS in the first full year of consolidation (the financial year ending 30 June 2015) and will generate double-digit IRR.
To fund the deal, Eutelsat has secured a dedicated 365-day secured bridge facility at an attractive rate from a group of international and French banks. The satellite operator will seek to refinance this once the acquisition is complete, most likely via the bond markets.
Financing the acquisition will push Eutelsat’s leverage up to 3.3x net debt to EBITDA, while its existing satellite investment programmes and the long-term capital leases from its deal with RSCC will push this ratio above that figure. However, Eutelsat stated that it is ‘firmly committed to maintaining its investment grade status and targets in the long-term a net debt / EBITDA ratio below 3.3x’.
Perella Weinberg was financial adviser to Eutelsat on the transaction, while Debevoise & Plimpton, Mijares, Angoitia, Cortes y Fuentes S.C. and Hamelink & Van den Tooren were its legal advisers.
Eutelsat fulfils emerging markets ambitions
The acquisition of Satmex very much fits into Eutelsat’s recent strategy of rapidly expanding its presence in fast growing emerging markets. To do so, the company has followed both an organic and inorganic approach.
At the beginning of July, Eutelsat teamed up with an investment vehicle in Russia to launch a subsidiary Eutelsat International that will commercialise the long-term capital lease deals it agreed with Russian satellite operator RSCC.
Meanwhile, last year Eutelsat made a push into Asia through its US$228m acquisition of the GE-23 satellite, its associated customer contracts and orbital rights. Prior to the deal, the company had already ordered a satellite with a dedicated Asian beam, Eutelsat-70B, which subsequently launched in December 2012.
In the same vein, just prior to revealing the Satmex acquisition, Eutelsat announced that it had ordered a new high-capacity satellite dedicated to the Brazilian and Latin American video and broadband markets.
Eutelsat 65 West A is to be built by Space Systems Loral and is due to be launched in early 2016. Based on the SSL 1300 platform, the spacecraft has a tri-band configuration with 10 C-, 24 Ku- and 24 Ka-band transponders.
The satellite will utilise the frequencies that subsidiary Eutelsat do Brasil was granted by the Brazilian telecommunications regulatory authority ANATEL in June this year. Eutelsat won the rights to the 65W in March 2012 bidding R$14m (US$7.9m) for the orbital slot.
With two other satellites Eutelsat-3B and Eutelsat-8 West B due to provide additional capacity to region in 2014 and 2015 respectively, the company is positioning itself to tap what is widely viewed as one of the fastest growing satellite markets.
According to Nathan de Ruiter, senior consultant at Euroconsult, satellite capacity demand in Latin America has accelerated in the last 5 years, recording a 9% CAGR over 2007-2012. Growth is expected to be sustained over the next five years with demand for C- and Ku-band projected to grow at over 6% per year.
Market growth in the region is primarily driven by the expansion of the regional DTH pay-TV market on the video side and by enterprise VSAT networks and cellular backhaul on the telecom side. The upswing of the DTH pay-TV market is illustrated by the rapidly growing number of DTH platforms in Latin America, which increased from 9 in 2007 to 25 in 2012.
Final chapter in Satmex’s turnaround story
The sale to Eutelsat marks the end of a dramatic few years for Satmex.
Following its emergence from Mexican bankruptcy protection in early 2006, Satmex was saddled with a particularly complicated capital structure. The company’s creditors held a 76.4% stake and the Mexican government 23.6%, as well as a majority of the voting rights under state law.
In 2007, management undertook a sales process but a potential deal was scuppered by the Mexican government as it refused to accept any offers below US$500m. Eutelsat was part of one of the final two bidding consortia for the operator.
Following the collapse of the attempted sale, the Satmex creditors proposed that the company look to refinance its US$378m debt, raise further financing and purchase Satmex 7 in order to replace the 13-year old Solidaridad 2 satellite. They reasoned that this would then result in the company being a far more attractive acquisition target and an auction process could then be restarted.
This view was shared by Patricio Northland who took over as CEO in April 2008. He moved quickly to order a replacement satellite from Space Systems Loral in July and then hired Perella Weinberg to undertake a strategic review of the company.
Northland oversaw a restructuring plan that sought to reduce costs and improve revenues by targeting larger companies on longer term more lucrative contracts. But his plans were hamstrung by the ongoing credit crisis which made it near impossible for Satmex to secure the necessary financing.
The company subsequently sought to bring in new investors to help finance the satellite but met with very little interest. Northland pointed to the Satmex’s problematic capital structure as the central reason for this. Not only were there the issues around the Mexican government’s holding but the majority of Satmex’s debt was owed to a number of noteholders who had negotiated a series of very strict debt covenants that limited what the company could do and spend.
To address this, at the beginning of 2009 Satmex begun talks with its bond and share holders over restructuring its debt. However, this process dragged and in early 2010 was overshadowed by a US$374m takeover offer from EchoStar Satellite Services.
That offer was ultimately rejected by Satmex’s second priority senior secured noteholders and instead they agreed to certain waivers that enabled Satmex to push ahead with its satellite order.
Those noteholders then took centre stage in Satmex’s development. At the beginning of 2011, Satmex reached a restructuring agreement with its second lien lenders that saw the company enter a pre-pack bankruptcy plan in the US.
Under the plan, Satmex carried out a US$460m recapitalisation transaction, split between a US$325m bond offering, US$96.25m rights issue and US$40m follow-on stock offering to the 2nd lien bondholders.
The proceeds were used to repay the first priority bond holders, other creditors and existing Satmex shareholders as well as to fund the construction and launch of Satmex 8.
The company subsequently completed a US$35m add-on bond offering in mid-2012 that enabled it to fund the order of Satmex-7.
With the capital structure finally simplified and the vital replacement satellites funded, Satmex had at last reached a point where it had become the viable sale target that it had sought to be from the moment it first emerged from bankruptcy in 2006. It had only taken seven years.
