M&A

Satellite demands drive value for DigitalGlobe-MDA combination

DigitalGlobe’s 2013 takeover of its then-Earth imaging rival GeoEye took place amid worries of funding cuts to a large U.S. government contract for satellite imagery services due to sequestration.

Government contracts including the National Geospatial-Intelligence Agency’s EnhancedView imagery program represented a majority of both company’s revenue at the time, according to regulatory filings.

NGA’s EnhancedView program currently represents 45 percent of DigitalGlobe’s $725 million in total revenue and that share of total sales will be diluted even further after the company is merged into Canada’s largest space company, CEO Jeffrey Tarr said Tuesday at J.P. Morgan’s Global Technology, Media and Telecom conference in Boston.

EnhancedView will represent nearly 15 percent of total sales for MacDonald, Dettwiler and Associates after MDA closes its purchase of DigitalGlobe, Tarr said. The contract is slated to expire in September 2020 but Tarr indicated DigitalGlobe’s general expectation is “that the mission” for satellite imagery continues.

“There’s nothing that changes about the mission and need for the U.S. government to maintain that kind of data support warfighters, first responders, coalition partners and a wide range of use cases,” Tarr said.

The combined MDA-DigitalGlobe entity expects one-fourth of its annual pro forma sales to be in U.S. government. Based on pro forma figures, MDA says the combined company would have generated $2 billion in revenue last year.

This pending acquisition is part of MDA’s larger U.S. Access Plan that saw it relocate the company’s operational headquarters last year from its longtime home in metropolitan Vancouver to San Francisco, closer to the Palo Alto, Calif. hub of its satellite manufacturing subsidiary Space Systems Loral.

(Click here for our conversation with SSL’s U.S. government leader Richard White on that plan)

MDA sought to extend its profile into the Earth observation and combine its satellite manufacturing work with data services and analytics from DigitalGlobe, CEO Howard Lance said at the J.P. Morgan-hosted event.

The services component in particular offers MDA a “more steady flow of revenue and profit that comes with that much less cyclical business,” Lance said.

“The merger with DigitalGlobe will give us even deeper access and understanding of the missions and needs and accelerate our penetration into the U.S. government,” he added.

DigitalGlobe made a pair geospatial analytics-focused acquisitions itself in 2016 via The Radiant Group and Timbr.

Nearly 64 percent of DigitalGlobe’s 2016 sales came in the U.S. government market, according to its annual regulatory filing, at roughly the same share before the GeoEye takeover. A 2012 investor presentation on the deal indicated 50 percent of revenue in that combined entity would be from federal agencies with the rest from international government and commercial customers.

GeoEye and DigitalGlobe first entered merger discussions in early 2012 after NGA told both companies the agency expected to see EnhancedView funding cuts. Those talks collapsed, then GeoEye offered to buy DigitalGlobe for $792 million in May 2012 but that proposal was rejected.

The companies traded acquisition offers with each other, then DigitalGlobe’s offer to acquire DigitalGlobe was accepted in July 2012 and the deal closed in January 2013.

EnhancedView's value is up to $7.3 billion over 10 years. NGA first awarded the contract in 2010 to DigitalGlobe and GeoEye. Each year of EnhancedView is individually renewed.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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