This combination creates a stronger and more competitive multi-orbit operator with expanded network, increased revenue in highly valuable and growth segments, stronger financial profile, and greater ability to invest in the future to better compete in a dynamic, fast-moving, and competitive satellite communications landscape.
The combined company’s capabilities, alongside complementary partnerships, will provide customers with enhanced coverage, improved resilience, and greater flexibility, as well as enabling the company to develop and deliver compelling solutions to drive the specific applications that customers need.
The transaction is highly accretive to free cash flow per share from Year 1 and delivers €2.4 billion net present value of synergies (representing 85% of the equity value for Intelsat and an annualised run rate of around €370 million) of which 70% will be executed within 3 years after closing of the transaction (expected during second half of 2025).
The combined company will have €9 billion of gross backlog (end-2023), €3.8 billion of revenue (2024E), and €1.8 billion of Adjusted EBITDA (2024E) which is expected to grow by mid-single compound average growth rate (CAGR) and underpins a strong, sustained cash flow generation outlook (see below).
2) What is the multiple implied by the transaction?
Based on the mid-point of 2024E Adjusted EBITDA outlook, the transaction represents an EV to Adjusted EBITDA multiple including synergies of 2.75 times or 3.50 times excluding non-cash items of around €175 million in 2024E which are expected to continuously reduce to €20-30 million by 2030 bringing cash EBITDA closer to accounting EBITDA.
|
|
$M |
€M |
|
Equity consideration |
3,100 |
2,844 |
|
Net debt (end-2023) |
1,741 |
1,597 |
|
Lease liabilities (end-2023) |
537 |
492 |
|
Dividend paid to Intelsat shareholders |
130 |
119 |
|
Expected U.S. C-band reimbursements |
(475) |
(435) |
|
Enterprise Value |
5,033 |
4,617 |
|
NPV of synergies |
c.2,600 |
c.2,400 |
|
Enterprise Value (EV) including synergies (A) |
2,433 |
2,217 |
|
Adjusted EBITDA (2024E) (B) |
870 – 900 |
800 – 830 |
|
Adjusted EBITDA excluding non-cash revenue (C) |
680 – 710 |
625 – 655 |
|
EV / Adjusted EBITDA (reported) (A / B) |
2.75 times |
|
|
EV / Adjusted EBITDA (excluding non-cash items) (A/C) |
3.50 times |
|
|
Net Present Value of synergies includes c.€155 million (split c.70% in Year 1 and c.30% in Year 2) of estimated costs to realise anticipated synergies and use a discount rate of c.10%. |
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3) Can you explain the non-cash revenue noted in Intelsat’s Adjusted EBITDA?
Previously, Intelsat had received upfront customer prepayments on certain long dated contracts resulting in Deferred Revenue Liability and interest accounting thereon (pursuant to ASC 606) which leads to an unwinding through the Income Statement via revenue recognition. These non-cash items are expected to be around €175 million in 2024 and gradually reducing to €20-30 million by 2030, bringing cash EBITDA closer to accounting EBITDA. SES expects most of these contracts to be renewed during the coming years resulting in continued stream of cash generating revenue and EBITDA.
4) What are the Contingent Value Rights as part of the transaction?
At the Closing, SES will issue to Intelsat transferable contingent value rights (CVRs) entitling the holders thereof to 42.5% of the net proceeds received by the combined company in respect of any potential future monetisation of the combined company’s usage rights for up to 100 MHz of the C-Band downlink spectrum at 3.98 – 4.2 GHz. The remaining 57.5% of net proceeds will be retained by the combined company.
The CVRs will terminate upon the earlier of (i) the full monetisation of the applicable spectrum and (ii) the date that is 7 years and 6 months following the Closing (subject to extensions if an event of monetisation occurs prior to such date, but the applicable consideration has not yet been distributed to the CVR holders).
5) How should investors/analysts model the combined business? What are the main drivers?
The combined company is expected to deliver growing revenue, Adjusted EBITDA, and Adjusted Free Cash Flow based on the following:
|
|
2024E |
Medium-term outlook (2024-2028) |
|
Revenue(1,2) |
~€3.8B |
Low- to mid-single digit CAGR with growth in Networks (60% of revenue) more than offsetting lower Media revenue |
|
Adjusted EBITDA(2) |
€1.75 – 1.83B |
Mid-single digit CAGR including synergies. |
|
Capital expenditure |
€(1.0 – 1.1)B |
c.€1.0 billion in 2025E. Normalised capital expenditure for the combined company is expected to be an average run rate of €600-650 million per annum for the period 2025-2028 |
|
Cash interest expense |
€325 – 350M |
For first year (i.e., 2026E), depending on market conditions, then stable to slightly decreasing from 2027E. |
|
Cash Income taxes |
€40 – 60M |
€40 – 60 million per annum over the medium-term (2024-2028), excluding any tax payments related to U.S. C-band proceeds. |
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All financial numbers based on an assumed foreign exchange (FX) rate of €1: $1.09. Financial Outlook information is conditional on nominal satellite health and nominal launch schedule 1) Pro forma financial information are aggregations of the corresponding SES and Intelsat financial information, adjusted for the elimination of material intra-group transactions. 2) Includes c.€175 million of non-cash items in 2024E, expected to reduce to €20-30 million by 2030E. |
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6) What will the key pro forma debt metrics look like? Does the company expect to maintain its investment grade rating? What will happen to the existing debt of the two companies?
On 31 December 2023, SES had reported gross debt of €4.2 billion (including hybrid bond of €550 million payable in January 2024) and a hybrid bond of €625 million with a combined weighted average interest cost of about 3%; Intelsat had $3.0 billion (€2.75 billion) of senior secured notes at 6.5% due in 2030; and the combined company had cash & cash equivalents of more than €4 billion.
In January 2024, SES repaid its €550 million hybrid bond with cash, reducing SES gross debt to €3.6 billion. Looking forward SES has debt maturities of €150 million in 2024 and €250 million in 2025. Additionally, the total amount of remaining U.S. C-band clearing cost reimbursements expected to be received in future was approximately €410 million for SES and approximately €435 million for Intelsat as of 31 December 2023.
The transaction ($3.1 billion equity value plus approximately €300 million of related M&A transaction costs) will be funded from the existing combined resources plus the issuance of new debt €3 billion, which is fully backstopped by a committed bridge facility. This new debt of €3 billion is also expected to comprise about €1 billion of new hybrid bonds, which will be treated as 50% debt and 50% equity. Immediately after closing, the Adjusted Net Debt to Adjusted EBITDA ratio (including 50% of hybrid bond(s) as debt and 50% as equity) is expected to be approximately 3.5 times. The Adjusted Net Debt to Adjusted EBITDA ratio is expected to de-lever to below 3.0 times within 12-18 months after the closing.