What is a Satellite Services Business Really Worth?
by Robert Bell
New York City, February 1, 2013--It is a bad time to sell satellite ground segment, aka a teleport. But it is a great time to sell a successful satellite services business with a teleport at its core. That paradox is the conclusion of Best Practices in Teleport Valuation, a newly published report from the World Teleport Association.
A teleport executive with several acquisitions said, “The only way you’re going to get any real value out of a business you are trying to sell is to look at it on an EBITDA basis (earnings before interest, taxes, depreciation and amortization). The only way you would ever sell a teleport just as a physical asset is if you had to, because there was no ongoing business. And it would be a distress sale.”
What makes a teleport valuable to a buyer, if not the physical assets? It is the value of the customer contracts, less the risk of their being cancelled, plus the track record of growth – and an analyst’s opinion of the current value of that future cash. But there is much more to the story.
It also makes a difference to buyers who the customers are. “Contracts with other service providers are not of much value to us,” said an executive of a company that is making acquisitions annually. “They are likely to be competitors. We are interested in end-customers, not intermediaries. The exception is in the emerging economies, where we like to see contracts with local partners. Let’s say we are looking at a teleport in Europe that services Africa through small-to-midsize resellers. There is value in that. In each country, we need local partners who can find business, license it, install it and maintain it.”
Another serial acquirer put it this way: “When you plan to put assets together, they need to perform better together than they would apart. One plus one has to equal three or four. Otherwise, why are you doing it? One approach is to chase savings but that really doesn’t apply well to our business. Most facilities are pretty lean when it comes to their biggest expense, which is people. The point of having multiple facilities is to attract business that you never could before.”
The satellite services business also has surprises in store for anyone used to valuing more conventional telecom assets. “What is different about buying a teleport from buying most communications businesses,” said a former teleport CEO, “is that it is also a real estate purchase. And in real estate, the three most important things are ‘location, location, location.’ Even in our global market, the services of a teleport are dependent on where you perform them from.”
What can the owners of a teleport-based business do to increase their return on investment? “When entrepreneurs sell businesses,” said one broker, “they have spent their whole lives getting customers and keeping operations going. Attending to the mundane details of documentation has never been a priority. But it becomes a priority now.”
Another broker summed it up: “The more you have your act together, the better your valuation is going to be. At least have your financials ready in GAAP form (generally accepted accounting principles) and make sure you have all the
due diligence materials to back them up: bank records, records of litigation, environmental records, licenses, customer and vendor contracts. The more you have this stuff neatly packaged with a bow on it, the more people are likely to believe what you say.”
A media executive valued a different kind of investment. “One very valuable step that doesn’t cost much money is to put extra effort into building your image or reputation. Show up at trade shows, join association boards, sit on panels and work to be perceived as a leader in the industry. It is one thing to have a business that is well-run; it is another to have people perceive that your company has strong, competent management, which can make it much more attractive to buyers.”
And what’s the biggest mistake an owner can make in putting the business up for sale? “A lot of sellers have unrealistic expectations,” said a teleport executive. “In our industry lately, we have seen some deals done at very high valuations in terms of EBITDA multiples – high single or even double digits. That is for companies that are large, have good contracts and professional leadership. Owners see that and think that their small company can be sold for the same high multiple.” But demanding a high price can carry risks. “The owner just wants to recoup his investment, said another executive. “He asks for crazy numbers and sticks to them. In the end, he gets the opposite of what he wants. He doesn’t get his price, and a broker comes in to break up the facility and sell the pieces as used equipment at the worst possible price.”
It is the rare satellite services business that is publicly held and reveals its inner workings. Best Practices in Teleport Valuation is a unique glimpse behind the scenes of a private market that is setting value on satellite services companies every day.
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Robert Bell is Executive Director of the World Teleport Association, which represents the world's most innovative teleport operators, carriers and technology providers in 20 nations. He can be reached at: rbell@worldteleport.org
