Dankberg and Suri Explain Strategy Behind Viasat/Inmarsat Acquisition

In November last year, Viasat stunned the satellite world when it announced it was acquiring Inmarsat in a deal worth over $7 billion. It was the biggest deal of 2021, and one that will create momentum for the whole industry going into 2022.

For Viasat, it shows a huge ambition and following the acquisition of RigNet, shows the company is ready for a new chapter. Via Satellite sat down with both Viasat Executive Chairman Mark Dankberg, and Inmarsat CEO Rajeev Suri to talk about this deal, Suri’s own future, the Inmarsat brand, and why both think this combination makes sense, despite the high price.

VIA SATELLITE: When did discussions with Inmarsat start? When did you think this was a realistic possibility?

Dankberg: We have known Inmarsat for a very long time and have interacted with them in a number of ways — even looking at how we might collaborate and work together. I would say Inmarsat became serious about an acquisition before Rajeev arrived. But for our deal, a lot of the timing had to do with their ownership consortium.

Suri: I did not come in with a grand plan for a potential exit. I knew from our consortium that there would be an exit, but my initial assumption was that we were probably three to four years away. It was clear, though, when we took a deeper look at what was going on in our industry, that things were evolving rapidly and that the structure of the industry we see today was not representative of the future. Because of my background in M&A, and what I had done in the mobile infrastructure business, I knew that it was important to take steps to improve the business neighborhood. We have 55 satellite players in a fragmented industry landscape, so something has to give.

But what we are doing with Viasat is not a typical consolidation exercise. This is a growth combination creating scale and scope. Viasat is an innovative, fast-growing company. We too have done very well this year. We are up 11 percent in revenue terms and 15 percent in EBITDA. From our perspective, this is a good combination being done at the right time.

VIA SATELLITE: Do you expect to stay at Inmarsat once this deal closes, or were you bought in essentially to help sell the company?

Suri: I am not that kind of person. The last company I joined; I was there for 26 years. I came in with long-term intent. Decisions on the management team will be part of the integration planning process. All I can say is at this stage my focus is to achieve a successful close to the deal. It is not done until it is done. Alongside this, we want to continue the momentum Inmarsat has built in terms of business performance and the drive for technology leadership. That is what I am all about, and then we will see what happens after that.

VIA SATELLITE: Mark, are the acquisitions of RigNet and Inmarsat an indication that you had to make some big moves to remain a player at the top table? Has Viasat’s strategy openly changed in this regard?

Dankberg: We haven’t changed our strategy — we are focused on optimizing opportunities in attractive vertical and geographic markets and have chosen to make strategic acquisitions that can differentiate our offerings and provide greater choice in broadband and narrowband services.

We are building around certain verticals like mobility, including aviation, maritime, energy and defense, among others that are natural satellite markets. We consider acquisitions when they enable us to best fulfill those customers’ needs. What this reflects, and what differentiates us, is that we aim to understand those businesses, what the problems are and then how we can create satellite space and ground technology, or better ways to create relationships with and serve those customers that are the most effective for them.

VIA SATELLITE: I noticed on the investor call when the deal was announced, you spoke more than anyone else. I know the plan was to take more of a backseat having relinquished the CEO position. Have your own plans changed in this regard, as you seem more high profile than ever right now?

Dankberg: The change we made back in 2020 wasn’t because I was going to be less involved, but rather just more focused on assessing changes occurring in the space industry. As Rajeev noted, there is a lot going on in the industry right now. We want to be confident we understand the fundamentals around space system architecture trade-offs, carefully re-evaluate bandwidth cost drivers at LEO [Low-Earth Orbit], MEO [Medium-Earth Orbit], and GEO [Geostationary Orbit], the geographic distributions of demand in different verticals, the drivers for bandwidth demand growth and value in different verticals, the fundamentals around sustainable space and especially orbital debris risks. There are a lot of different architectures being developed and funded and we want to be sure we understand the trade-offs, the advantages, and the disadvantages of each of them in detail.

I spent a lot of time working with our team researching, analyzing, and modeling, to be sure we’re not missing anything. That also involved working with each of our vertical and geographic business areas to be sure we understand what customers want. I’ve always spent a lot of my time at the intersection of business and technology strategy, and I just focused more on that for a while. I’ve learned a lot about orbital debris, and there are very real risks there that we, as an industry, must urgently address.

Rick and I have always had a very close working relationship, and a very strong management team. We’re always going to be vigilant around new technologies and business models, but after a year or so of intense focus there I’m just back to allocating my time more like I did before.

VIA SATELLITE: What are your thoughts on keeping the Inmarsat brand, or is ultimately the plan for everything to go under the Viasat brand?

Dankberg: The Inmarsat brand has been built over 40 years and is certainly recognized in key verticals, including the maritime industry as well as within other areas of the mobility industry. We intend to work closely with Rajeev and his team to figure out the right path forward.

VIA SATELLITE: Rajeev, why is this a good deal for Inmarsat?

Suri: The combined company is superbly positioned for the long-term. The deal will create an immediate global communications leader in what is still a fragmented sector. Viasat is one of the fastest growing companies in the sector, and we have also done very well and been a fast-growing company this year. We bring a strong international element to Viasat and we occupy the sweet spot for growth in satellite communications, which global mobility represents.

I believe this is a scale and scope combination, a growth combination, and we have highly complementary capabilities and geographies, so the ability to sustain growth is strong, both in terms of market segments and geographical reach. On top of that, as well as not having a great overlap, there are excellent potential synergies, including over $100 million per annum in long-term capital expenditure.

You rarely get to see such strong complementarity and growth potential in a combination. I have done plenty of deals in my life, one of which was Alcatel-Lucent and Nokia. This followed a similar logic – it made Nokia more of an end-to-end company with much broader scope and scale. It was superbly complementary, and you can see that the best part of Nokia right now is from the Alcatel-Lucent acquisition.

These things take time. And this deal with Viasat is the best combination I saw in our industry. Of course, we spoke to a number of players, and we were a good dance partner for many, but this was the one that offered employees, customers, investors and all stakeholders the best long-term opportunity.

VIA SATELLITE: Mark, in the past when you spoke about LEO, you said it has its place, but did not give it a ringing endorsement. Do you envision going ahead with Inmarsat’s Orchestra LEO plans?

Dankberg: I think Orchestra is exactly on the right path. It is not GEO-centric, it is not LEO-centric, it is not anything-centric. It is about understanding the requirements for particular markets and customers and using technology to fulfill those needs in the best way possible. I would not recommend that a customer use LEO at the exclusion of everything else. Nor would I recommend that a customer use ATG [Air-to-Ground] at the exclusion of everything else. Or GEO for that matter. There is a place for LEO, GEO, HEO, MEO, ATG and terrestrial in a future hybrid architecture. Based on what we know about Orchestra now, we see it more as integrating the best attributes of multi-orbit and terrestrial, including LEO – but, not a LEO-centric strategy.

Suri: We must be customer driven. So, let us start from the customer first, and not talk about technology for technology’s sake. Secondly, augmentation is the operative word. We want to augment with LEO and 5G. There is a GEO/LEO/HEO world and 5G. But only we want to do it where it makes sense. Otherwise, you are just chasing technologies. You need to have latency in the right place. You need hotspot relief congestion in the right place. You need to be customer driven, use case driven and then the right answers come.

VIA SATELLITE: Why was it so important to pay over $7 billion for Inmarsat? It is a high price.

Dankberg: Before making any decision, we strongly evaluated forecasts for our company as a standalone organization and compared that with an Inmarsat acquisition. And what we came up with, is that financially this was quite accretive for Viasat and our shareholders.

We believe this transaction is good for customers — and have already had very positive customer responses; is good for investors and shareholders and is good for employees. It should be good for our suppliers and distributors, too. Through all of our evaluations and reviews, we feel this deal is strong for all parties.

From an investment perspective, this transaction is quite accretive to Viasat, especially in terms of free cash flow generation which is one of the attributes we believe our investors are most interested in. We financially valued the deal on existing businesses, which are primarily broadband for us, and both broadband and existing L-band narrowband areas at Inmarsat. But, we also think there are emerging real opportunities in the L-band space with IoT, and leveraging their spectrum position. So, not only do we get tangible financial results, but we get a lot of strategic upside as well.

VIA SATELLITE: In February [2021], former Inmarsat CEO Rupert Pearce was let go rather abruptly. The company had huge changes in its management team this year. From the outside, it looks like a complete 180 in terms of strategy, with Orchestra being a prime example. Were there any concerns about this when analyzing them?

Dankberg: From our perspective, the management changes that Rajeev has instituted have been for the right reasons and have helped to orient Inmarsat’s focus more toward being customer-centric versus technology or infrastructure centric — which is nicely aligned with our views.

The maritime business has experienced significant change over the last year or two. Inmarsat has largely completed migrating maritime connectivity from L-band to Ka-band, while highlighting that there is an enduring value proposition of L-band in safety and reliability, by augmenting broadband, and not so much as a broadband alternative. We think they are doing a good job of targeting distinct value propositions for L-band and Ka band, and that is creating a foundation for growth.

Suri: Maritime is 40 percent of Inmarsat’s business. If you want Inmarsat to grow, that piece must move to shift the needle, and we have approached an inflection point this year. When we talk about Fleet Xpress (Ka-band), that is now greater than FleetBroadband, and the churn we saw in FleetBroadband is reducing. Maritime is a sustainable growth business as a result.

In terms of the management changes, it is all about more urgency. It is about change, people accountability, being customer-centric. So far, it has worked out well. We are having some of the best quarters we have had in quite some time.

VIA SATELLITE: Rajeev, why could Inmarsat no longer go it alone? It is one of the jewels in the United Kingdom’s space crown. Given the boom in the U.K. space industry, do you think it needs to be part of a bigger entity going forward?

Suri: This is the first thing I worked on. I examined the strategic environment and landscape to determine the best path forward for Inmarsat. We could have gone alone, but we are a niche player in global mobility. The global mobility and government market is worth around $12.5 billion. We have about $1.3 billion in revenue, so we have around 10 percent market share.

If you look at the broader market, we are a much smaller player. We could have had a go it alone approach, but I do not think it would be sustainable for the long-term. I am a fan of looking at 10 years from now and doing a future back assessment. Therefore, we decided to make a bolder move and act decisively and create a true global leader. I think for Inmarsat being part of a much larger global combination was in the best interests of the company, our people, customers and partners. It is a scale and scope combination.

Viasat has been very innovative over the years. Together, we will be a much more diversified company. If you look at every other combination in the industry, this really is the best one. This combination is not just about us milking the assets and reducing costs. It is about accelerating growth.

There is a big synergy opportunity here. Once we have completed our respective satellite launches over the next three years, there will be much lighter CapEx. So, there is very strong logic. Through this deal, we are committing to a strong and sustainable presence in the U.K., which is critical for the U.K. space strategy. This deal makes us even stronger in the U.K.

VIA SATELLITE: Was there other serious interest in Inmarsat?

Suri: There was interest. We were a good dance partner for many. We have been very thoughtful in the process and Viasat/Inmarsat is the right combination. There clearly was interest in us, but this was the one that was the most pleasing to us on a number of fronts, as well as for our board. There was a meeting of minds. Culturally, I think we are a good fit. I would highlight our complementarity. You rarely see the level of complementarity that you see here. This is a growth play.

VIA SATELLITE: I want to talk about the U.K. angle. In a separate industry, Kraft Foods acquired Cadbury and made lots of promises about keeping the U.K. brand, hardly any of which were kept. There are many people in the U.K. that are skeptical when a big U.S. company takes over a U.K. "crown jewel." What would you say to those people who want to see a strong, vibrant U.K. space and satellite market?

Dankberg: We too want to see a strong, vibrant U.K. space/satellite market, and as we’ve stated publicly, we intend to maintain the factors that were decided upon by the U.K. government and the consortium during Inmarsat’s prior privatization transaction and build or enhance upon them. There are some real benefits to growing our presence, skills and teams in the U.K. and that is what we’ve been focused on in discussions. If you look at our track record of making acquisitions, almost all of the businesses we have acquired have become bigger and stronger with more jobs and greater diversity of jobs in the locations where we acquired them. That has been our history, and I don’t see any reason why this wouldn’t be the same.

Suri: I fully agree. I partnered with Rick and Mark in discussions with the U.K. government, and it has been much speedier, efficient, and pragmatic. What we are doing is for the right commercial reasons for the combined entity. We have had great discussions with the U.K. government. I think we can get this agreement done way quicker than our take private transaction, and I think that bodes well, and everyone will be happy with the outcome.

VIA SATELLITE: If you could name one vertical that really excites you over the next few years, which one would you name and why?

Dankberg: For us, the single most exciting market is the aviation market. It has probably got the most total potential, and the value proposition that we have bought to market is really resonating, and that is why we have been so successful in North America. There is huge potential in this industry, and we have a great ability to fulfill this.

Suri: I would say aviation also.

VIA SATELLITE: Do you see this kickstarting more consolidation in the arena? Ultimately, we will see the 2020s end with three to four big players with constellations and satellite assets?

Dankberg: I wouldn’t be surprised if our transaction causes others to think about their long-term future; I think that happens whenever an industry experiences consolidation. But I’m not going to predict the future for others; right now, we’re focused on our combination and what it can enable for our customers.

Suri: Our strategy is to do our deal, not to kick-start wider consolidation. Having said that, there is always a triggering event, and this may be it. If I were to venture a guess, I would say that by the end of the 2020s, economically, there will only be a place for a handful of companies. It is a very fragmented industry with new players coming in regularly.

I do think this industry will consolidate over time. If you take a seven to 10 year view, there really is only room for a handful of players. I predicted the same in the networks business when Nokia Siemens did not have the right to win, because we were near bankrupt. I said there would be three players in the next 10 years, and we will be one of them. I was right on that one. There are now three scale players and that is what made that a growth industry again. So, I would say a handful.

But, as I said, that industry context was not our motivation. What we are focused on is doing the right deal at the right time.

VIA SATELLITE: You mentioned that the total addressable markets for Viasat in 2030 could be around $1.6 trillion. How do you define that opportunity? How big could the overall industry get by 2030?

Dankberg: We aspire to be a $10 billion to $20 billion revenue company — and are energized about how to get there. The opportunity is to apply satellite technologies in a way that best meets the needs of some subset of all those vertical and geographic business areas that make up that $1.6 trillion total addressable market. I think it will take deep understanding of specific customer needs and wants – and not just selling satellite pipes to a highly diverse customer base. Clearly it’s a very, very large playing field of rapidly growing and newly emerging fixed and mobile air, land and sea connectivity demands on a global basis. It’s connecting everybody and everything, everywhere who are left behind by purely terrestrial services – either because of geographic reach, or insufficient economic returns. While reliable, high capacity, global coverage is necessary, it’s not sufficient. We also know the vast majority of demand, and the bottlenecks, will be highly concentrated where most of the people are. We have existing proof that we can use satellite cost effectively to connect people where there are no other economical alternatives today – or likely in the future.

Suri: Overall, it is a very large opportunity with a big total addressable market. But, I am a believer in making choices. You do not want to be all things to all people. You want to be focused on the areas where you know you can win. You want to drive with technology leadership at the core of your culture, and that is where a meeting of minds is taking place, because we both have strong engineering cultures and an ambition to win. VS