European aerospace group EADS is to pay US$960 million (584.9 million pounds) for satellite communications service provider Vizada in the latest of a series of deals making use of surplus cash.
The purchase, from private equity owner Apax France, was flagged by Reuters on Sunday, and is part of a strategy to reduce EADS’s exposure to cyclical manufacturing revenues, especially those at passenger jet unit Airbus.
Owned until now by Apax Partners, Vizada was formed in 2007 from a spin-off and combination of satellite services held by France Telecom and Norway’s Telenor.
It provides communications services to 200,000 users in maritime, aviation and defence and will become part of EADS’ Astrium space business.
“The growing demand for maritime services is a perfect cornerstone for Astrium to develop its commercial satellite communications business,” EADS said in a statement.
According to EADS, Vizada expects to generate around US$660 million in revenue and US$95 million in earnings before interest, tax, depreciation and amortisation this year.
The deal is EADS’s second-largest acquisition after the 2.75 billion euro (2.4 billion pound) buyout of BAE Systems’ 20 percent stake in its main subsidiary Airbus.
Under pressure from analysts to look at better uses for an 11 billion euro net cash surplus, EADS has long said it is ready to spend up to 2 billion euros to fund external growth.
But the pace quickened after it lost a contest with Boeing, the world’s largest aerospace company, to supply air tankers to the Pentagon in March. The setback removed a chance to make the U.S. a bigger launchpad for internal growth.
In June, EADS bought Canadian repair firm Vector Aerospace for some 450 million euros and last week Airbus announced a US$500 million bid for Danish parts distributor Satair.
Airbus also agreed to buy Metron Aviation, which supplies services for air traffic control, for an undisclosed sum.
EADS said the latest deal would boost its earnings per share and generate “significant” synergies.
Analysts have welcomed the series of self-funded cash acquisitions, which have a lower hurdle for boosting earnings than those financed by paper, but expressed some concerns that EADS may be tempted to overpay to speed up external growth.
“I would say there is a risk of that,” said Nomura Equity Research analyst Jason Adams.
“Given the Satair one and the multiple they are paying for this, at some point the investors will be a bit concerned if they think EADS is overpaying for acquisitions.”
The company’s other options are limited as a buyback to whittle down EADS cash is complicated by the Franco-German-led company’s shareholder structure, which is also in some flux.
“EADS is wise to pursue such a bolt-on M&A strategy,” Adams said.
Europe’s space industry is dominated by EADS Astrium with its Ariane space rocket and Thales Alena Space, owned by France’s Thales and Italy’s Finmeccanica. OHB Technology of Germany is also boosting its role.
Amid cuts in European arms spending, Astrium edged past the Cassidian defence unit to become the second-largest EADS unit by revenues in the first half with sales of 2.347 billion euros.
Apax Partners said the deal marked its third successful exit in the telecom sector over the last two months following sales of Prosodie and Outremer Telecom.