[SatNews] RigNet, Inc. (Nasdaq:RNET) has a strategic deal with Inmarsat plc (LSE:ISAT) that involves the sale of Inmarsat’s Energy Broadband business to RigNet, and the appointment of RigNet to become a key distribution partner to deliver Inmarsat’s Global Xpress (“GX”) and L-band services to the energy sector worldwide.
RigNet reached this definitive agreement to acquire Inmarsat’s Energy Broadband business for $25.0 million in cash, which adds to RigNet’s technology solutions, customer base and geographic footprint. The business being acquired represents one of the largest pure play providers of remote communications to the oil and gas industry, making it a natural and strategic fit with RigNet’s complementary business. Under the terms of the deal, Inmarsat will carve out and sell to RigNet all of its energy broadband assets, which include: Microwave and WiMAX networks in the U.S. Gulf of Mexico serving drillers, producers and energy vessel owners; VSAT interests in Russia, the United Kingdom, U.S. and Canada; an M2M SCADA VSAT network in the continental U.S. serving the pipeline industry; a telecommunications systems integration business operating worldwide; and a global L-band MSS retail energy business. The energy carve-out includes assets, employees, contracts and working capital.
Artistic rendition of Inmarsat’s GX satellite.
Mark Slaughter, RigNet’s chief executive officer and president, said, “We are delighted to enter into this strategic partnership with Inmarsat. As the two companies came together for discussions over a number of months — with RigNet evaluating high-throughput satellite providers and Inmarsat seeking a strong distribution channel into the energy market for its GX offering — it quickly became clear that this deal represented the best path forward for both companies.
“With the purchase of Inmarsat’s energy broadband business and the addition of GX and L-band to our transport options, we will broaden and deepen our capabilities to serve the oil and gas industry across the life of the field from drilling through production,” Slaughter added. “This deal will enhance our services portfolio with world-class additions. The highly-skilled staff that comes with the business will expand our team at an opportune time in the energy cycle. Altogether, RigNet’s extensive product and services portfolio tailored for the oil and gas industry, coupled with the unprecedented connectivity capabilities of Inmarsat’s GX network, sets the stage for a step change in managed remote communications services to the oil and gas industry.”
Rupert Pearce, Inmarsat’s chief executive officer, added, “We are excited about this partnership as it enhances the strategic positioning of both companies as we seek to address the communication needs of the global energy sector together. RigNet is the perfect partner for Inmarsat, supporting a large customer base of oil & gas VSAT customers, whom we expect to be at the forefront of the transition to GX services. We also welcome the opportunity to work with RigNet’s management team with its extensive knowledge of VSAT operations and customers. This partnership prepares the way for a fast and successful take up of GX services in the global energy sector.”
The business being acquired had revenues of $81.0 million in 2012. The company expects the acquired business to achieve, on a run-rate basis within the first year of closing, an EBITDA contribution margin of 8-10 percent. As RigNet integrates the operations, it anticipates that it will incur $5-6 million of integration expenses through 2014. Based upon past history, annual capital expenditures for success-based opportunities and maintenance has averaged $5-6 million. RigNet expects that it will make additional capital investments of $5 million in 2014 to continue the network upgrade projects in the acquired business that are currently underway. RigNet expects to finance the transaction with a new credit facility and existing cash.
“A major goal will be to raise over time the acquired business’ growth rates and margins to levels closer to those we see in RigNet’s existing operations today,” said Slaughter.
Both companies have approved the transaction, which is expected to close during or before the first quarter of 2014 after customary conditions have been met and regulatory approvals obtained. Deutsche Bank acted as RigNet’s exclusive financial advisor and Norton Rose Fulbright acted as RigNet’s lead legal advisor on the transaction.
