The $3.1 billion sale of Intelsat to rival satellite operator SES is having a significant impact on the satellite industry, according to finance experts. The merger is disrupting deals and delaying projects for suppliers and other companies further down the chain.
“Intelsat and SES are the two largest geostationary satellite operators in the world,” noted Armand Musey, a satellite industry analyst and founder of Summit Ridge Group. "This deal is affecting some of the downstream suppliers to each of those players, and suppliers to those suppliers. The ripple effect downstream is enormous.”
Suppliers are facing uncertainty as the two companies seek synergies and consolidate their supply chains. "The other thing that's happening is those two companies are on the sidelines for M&A," said Karl Schmidt, a managing director at investment bank KippsDeSanto. "They've probably got capital structures to adjust, you've got integration tasks to go through, so you've basically got some buyers out of the market.”
In the long term, the combination could create a healthier company that would ultimately be a stronger buyer of services in the middle market. However, the short-term impact on suppliers is likely to be negative.
Like most fixed satellite services (FSS) providers, SES has traded below book value as its data services, which also leverage satellites in medium Earth orbit, face mounting competition from Starlink in low Earth orbit (LEO). Meanwhile, the European operator's satellite TV business is grappling with an ongoing shift to online streaming alternatives.
The deal is also causing delays in vertical integration initiatives. Both Intelsat and SES have been buying companies to become more vertically integrated in response to the challenging FSS environment.
“You’d have to assume that vertical integration process that they were undergoing is going to be on hold for the next year or so,” Musey said. “Maybe more.”
The potential combination adds to the financial woes facing their chief geostationary satellite makers Airbus Defense and Space and Thales Alenia Space, according to Francois Chopard, CEO of U.S. accelerator Starburst. “There is discussion in Europe for them to either merge or for sure restructure.”
Demand for geostationary satellites “is plummeting in all directions,” Musey added, and “the only real market left is government … increasingly, because of the pressure in the commercial markets, the government market is becoming just that much more important.”