Satellite business: Time for transactions?

While many emerging economies are growing again, most developed economies are still recovering and governments are under pressure to reduce spending and deficits. Yet, the satellite sector continues to deliver a solid performance. In the satcom sector, FSS operators’ revenues reached nearly $10.7 billion in 2010, with growth exceeding 4% last year. The MSS sector delivered 7% growth in revenues to $1.4 billion. In the Earth observation segment, the deployment of new high- resolution systems should support revenue growth. The current political instability in the Middle East and North Africa could also boost growth.

Operators’ investment strategies and technical innovation along the value chain are driving growth, making the sector attractive to investors. And while the last two years have been dominated by project financing and export credit agency support, larger equity investments are likely on the horizon.

This year should also see several M&A transactions. The acquisition of HNS by Echostar will probably be followed by other acquisitions by operators or investment funds. M&A activity is also probable in the service and equipment segments.

Satellite manufacturing remained solid in 2010 with 26 GEO communication satellites ordered - in addition to Iridium’s NEXT constellation – including three contracts of more than $1 billion. With many replacement contracts already inked, it will be difficult to maintain the same level of orders this year. Fierce competition is expected between prime manufacturers as demand for more capable and complex satellites remains strong.