Hong Kong’s SpeedCast has been busy consolidating the satellite communications sector since coming under private equity control nearly three years ago. SatelliteFinance speaks with CEO Pierre-Jean Beylier to find out more about its rapid growth…
Hong Kong’s SpeedCast has been busy consolidating the satellite communications sector since coming under private equity control nearly three years ago. SatelliteFinance speaks with CEO Pierre-Jean Beylier to find out more about its rapid growth strategy.
Jason Rainbow: SpeedCast has acquired seven satcoms firms since being snapped up by private equity firm TA Associates in late 2012. What has been the overriding theme behind this bolt-on strategy?
Pierre-Jean Beylier: The acquisitions have been driven by growth and revenue synergies. All these companies have filled a gap in our approach to the market – a geographic or vertical gap, and added industry expertise. It’s been about growing with these companies faster and in a more sustainable way than if we were all operating separately.
Then, as we’ve grown in size, we’ve obviously achieved economies of scale. We knew there were advantages with scale but we’ve found that it matters a lot more than we initially thought.
JR: As you were building scale, your M&A drive appeared to initially focus on buying service providers across Asia. Recently, however, SpeedCast bought Africa-focused Geolink Satellite Services, as well as the Hermes datacomms in the UK. Is your acquisition strategy now shifting to focus on building out your geographic presence over this side of the world?
PB: On the geographic side, it was initially more focused on strengthening our leadership position in the Asia Pacific region, and today I think we have a very strong leadership position there. There is probably a bit less for us to do in this region now, although we still have a few ideas…
We have a growing number of customers in the Asia Pacific region who are asking for us to help them in Africa. So we have decided to enhance our capabilities to provide services in the African continent, and that’s why we made the Geolink acquisition.
On the vertical side, Hermes is an industry play. It is a company that’s 100% dedicated to servicing customers in the oil and gas industry. Energy has been a small business for us, it’s bigger now, but we’re still a small player in that industry. It’s an area we are putting more focus because we have seen it as a growth opportunity for us.
JR: How much of your business today is focused on the energy market?
PB: It’s probably 20-25% today. Maritime and then the enterprise and mobility markets still represent the biggest parts of our company.
We see strong growth opportunities in both energy and maritime. Having said that, the other verticals are growing as well. Not as fast, but they are growing.
So I think what is exciting about our business is that we are a growth story, and we’ve been able to sustain that growth over many years now. One reason for that is the diversity of our business – our ability to pull different levels of growth. Not everything is always growing at the same time but we will always have elements of our business that are growing, given the diversity of our company.
JR: So how concerned are you then about the downturn in the energy industry – particularly oil and gas?
PB: Not concerned at all actually. We see it as a significant opportunity because customers are looking to save money and we feel we’re in a good position to provide them with cost-effective services, given our scale.
We also see that some of the big oil and gas players are experiencing difficulties, and I have a feeling that some customers are looking for alternatives to fulfil their requirements. I also think that SpeedCast is now really well equipped to serve the energy sector with our scale, financial strength and global reach. With Hermes’ key presence on the ground in a number of very important energy sector markets, and their strong oil and gas expertise – having serviced this industry for several decades – and our head of energy Keith Johnson’s relationships in Houston, I think we’ve got all the ingredients to be a reliable alternative to the larger suppliers in that vertical.
JR: What do you look for in an acquisition target – generally?
PB: The foundation and basis of our business is organic growth. We have to grow in double digit revenues. If we acquire a company that is not growing then it makes that more difficult.
So we look at growth, track record of growth and potential for future growth. We look for companies with an entrepreneurial culture, one that is similar to SpeedCast’s and very strongly focused on customer satisfaction and teamwork – with a passion for servicing our customers.
We are looking for companies that are profitable. Growing is one thing, but we prefer to avoid using a lot of management time to make a turnaround story. That’s time that is not spent on growing the business.
And we look for companies that have grown to be successful and built a name for the quality of their services and support. I think that’s essential. SpeedCast has built a tremendous brand name in Asia Pacific around the quality of its services and support, and we don’t want to jeopardise that. So a company that is only growing on price and providing only an average quality of services is probably not a good target for us.
JR: How important is your need to gain scale? Could SpeedCast consider an ambitious reverse takeover for instance?
PB: I don’t think there is an absolute need to gain scale because now we have the scale we are comfortable with. We can go after large corporate customers and we can push ourselves in the oil and gas sector.
I think this is more about whether there are companies out there that can really strengthen our ability to win business – in a given geography or industry. And I think the answer is yes, so we’ll continue to apply this approach of acquiring small to mid-sized companies that can come and fill a gap in our growth strategy.
But it’s not a problem if we don’t make any acquisitions in the next 18 months because we haven’t found the right fit. The company is very focused on its organic growth and we’ll continue to focus on that.
In parallel, if there is a transformational deal to do out there with a company that is as big as or bigger than SpeedCast, then yes we would consider it. If our investors and shareholders are convinced of the value of such a deal then I don’t think we’ll have an issue to finance it.
JR: How has SpeedCast been funding its deals so far? How supportive have the capital markets been to your strategy?
PB: We’ve been funding the deals with debt so far and, as long as we have some debt financing capability, then we’ll try to continue doing that. But obviously we don’t want to stretch our leverage too much because we want to make sure we have the capability to grow.
My impression from our shareholders is that they understand our consolidation story, that we are in a fragmented industry, and it makes a lot of sense to do these acquisitions.
Even though we’ve done a lot of deals, what people may not realise is that none of the companies we’ve acquired were for sale. They’re companies that we’ve selected because they fit with our strategy.
So we’ll continue to be selective and as long as we are, and pay the right price, then I think we’ll continue to get strong support from our shareholders. If I judge by our share price so far then our growth strategy – both organic and market consolidation – has been well received.
JR: Has SpeedCast’s M&A and finance strategy changed at all since its IPO last year?
PB: No it hasn’t. I think there’s a bit more of a focus on energy because we’re really seeing an opportunity right now to grow that business, but overall the strategy has not changed.
Maritime is our biggest growth engine and continues to do well. There are multiple smaller growth engines in our enterprise and emerging market businesses in the other verticals. The strategy hasn’t changed at all.
JR: As for the mobility market, you’ve been very vocal about the opportunities you see there as high throughput services come online. More capacity will lower prices per bit, so where will demand come from for HTS to help tackle that?
PB: I think the difficulty with HTS is about where you position your beams. You’re dealing with very small beams with a lot of power. You need to position them where you have potential to get sufficient business to get a good return on your investment for that specific beam.
The difficulty is that, particularly in parts of Asia and Africa, population density varies. Sometimes there is a smaller density of businesses, for example, so it’s not obvious to decide where you will need to position your beams.
I think the Middle East is an area where we’ve seen a lot of high throughput satellites being launched. Certainly, some of them are in Ka-band and obviously the weather helps there, and it’s probably a little bit more densified than in Africa and Asia. But I’m not sure about the demand there.
A lot of the HTS initiatives have been around serving the consumer market, which is not a market I know well. But for the enterprise market, we think there will be demand for high throughput satellites in areas where you have a need for either high bandwidth, or areas where your customers don’t necessarily use a lot of bandwidth but you have a lot of them.
Certain maritime routes will be interesting, as well as offshore oil and gas areas. That’s where we’re looking at using high throughput satellites right now.
The other potential area, if the architecture of the high throughput satellites allows for it, is backhaul. There are countries in Asia and in Africa where there is a growing number of mobile phone subscribers, and where we expect a strong expansion of the network to rural areas. High throughput satellites could play a role there.
JR: What is your view of the satcoms market in general? How do you expect its consolidation will play out in the next five years?
PB: I think the consolidation has accelerated a bit with large and medium sized players, but I don’t see much happening yet among the smaller local players. There hasn’t been much activity within countries with two players getting together, or larger players buying small groups in various counties to get a foothold.
I think there’s still a lot to do. The consolidation trend is advancing and, three to five years from now, you’ll continue to have a number of small players in some markets, but I think there’ll be a smaller number of large players.
