Permira sees more satellite growth, M&A

By Dane Hamilton and Michael Flaherty

NEW YORK (Reuters) - The satellite industry is poised for both stronger growth and more consolidation, said Tom Lister, a partner at Permira, a major investor in the technology, media and telecoms arenas.

The private equity firm, which has raised about 22 billion euros ($29.5 billion) since 1985 for global buyout activities, was part of an investor group that bought Intelsat Ltd., a large satellite operator, for about $5 billion in early 2005. Months later, Intelsat agreed to buy another large satellite operator, PanAmSat, for about $3.2 billion.

"We've found we've been able to improve the businesses we own a lot, and I think there is a lot more to go," Lister said. He added that many satellite companies were run as government entities, so often there was little focus on improving the business.

Lister said that valuations of satellite companies have risen to about nine times their cash flows from about six times, and that gross margins are about 70 percent.

SES Global (SESFd.PA: Quote, Profile, Research, Stock Buzz) and Eutelsat Communications (ETL.PA: Quote, Profile, Research, Stock Buzz) are among the other major satellite providers, besides Intelsat and PanAmSat.

"There are really five or six big players today," Lister said, speaking at the Reuters Hedge Funds and Private Equity Summit on Wednesday. "I think there will be more consolidation."

But Quadrangle founder Steven Rattner, speaking after Lister at the summit on Wednesday, said he thinks satellite valuations are too high. Quadrangle is a private equity firm focused on the media and telecoms sectors.

"Valuations have gotten to the point where even for businesses that are attractive, it's hard to make the numbers work. I like the satellite business, but it's hard to see valuations that are compelling," Rattner said, adding that he thought telecoms companies offer the best bargains.  Continued...