Advertisement 1

MacDonald Dettwiler & Associates should expect competing bids for DigitalGlobe

If MacDonald Dettwiler & Associates wants to buy DigitalGlobe, it can expect a competitive bidding process

Article content

If MacDonald Dettwiler & Associates Ltd. acquires DigitalGlobe Inc., the Canadian satellite company will more than double in size, add a major player in satellite imagery, and extend its reach in the lucrative earth observation market.

But a transformational deal of this magnitude also raises leverage concerns, according to CIBC World Markets analyst Stephanie Price.

Advertisement 2
Story continues below
Article content

DigitalGlobe shares jumped on Friday after reports emerged suggesting MDA is in advanced talks to buy the Colorado-based provider of high resolution earth imagery products and services.

Article content

The company has an implied valuation of US$2 billion to US$3 billion, and offers MDA potential synergies and expanded access to the U.S. government.

DigitalGlobe current provides 90 per cent of the foundational imagery to the U.S. government – a business that accounts for roughly 60 per cent of its revenues – through 80 contract vehicles.

Price noted that MDA has also built several ground stations for DigitalGlobe to process optical and radar satellite imagery, so the companies are very familiar with each other.

The analyst also pointed out that MDA has security control clearance with the U.S. government, which should reduce roadblocks with The Committee on Foreign Investment in the United States.

However, she cautioned that the deal could raise anti-trust concerns, since it would see the combination of two major players in the satellite imagery space and increase vendor concentration in U.S. government procurement.

As for MDA’s leverage, Price estimates the company’s net debt to EBITDA could climb to anywhere from 4.5x to 5.5x, although earnings per share accretion is estimated to be 19 per cent (excluding synergies), depending on the price tag for DigitalGlobe.

“The earth observation market continues to consolidate,” the analyst said. “If DigitalGlobe is in a sale process, we expect competing bids could emerge from private equity or other broadcast satellite providers looking to enter the earth observation market.”

Article content
Comments
You must be logged in to join the discussion or read more comments.
Join the Conversation

Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.

This Week in Flyers