Eutelsat and key OneWeb shareholders signed a Memorandum of Understanding in July 2022, with a view to combining Eutelsat and OneWeb in an all-share transaction, whereby Eutelsat and OneWeb shareholders will each hold 50% of the Eutelsat shares.
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The Satellite Connectivity market is poised for a period of significant growth, with barriers to adoption relating to bandwidth, latency, pricing, and terminals all reducing, thereby driving market expansion at an unprecedented rate. Between now and 2030 the Satellite Connectivity market is expected to more than triple in value from $4.3bn to c.$16bn.
The contribution from NGSO3 is expected to grow c.2.5x faster than the overall market to represent almost 50% of the market by 2030, mostly captured by LEO constellations. Demand growth will be spread across four key verticals: Fixed Data, Government Services, Mobility and Consumer Broadband, all of which can be most optimally addressed by a GEO/LEO combination.
Moreover, growth is expected to remain robust beyond 2030, driven by the continuing expansion of existing applications, and technology-driven new use cases.
OneWeb is currently one of the only two global LEO broadband constellations in service, with secured priority spectrum rights, and already reaping the benefits of its early-mover advantage. Its Gen 1 fleet has already been fully funded and successfully began its entry into service.
With almost two-thirds of its launches completed, OneWeb’s Gen 1 constellation is already generating revenues above the 50-degrees North latitude and requires only a further two launches to extend its coverage to 25-degrees North, well on track for full global entry into service expected by end-2023. The constellation is delivering a high-quality customer experience, with average global one-way latency of 70ms, download speeds of up to 195Mbps, user terminals adapted for each market and a suite of fully managed connectivity services.
OneWeb already has over $600m in total contracted revenues, and a risk-weighted pipeline of up to $1.9bn spread across its four key verticals of Enterprise, Government, Aviation and Maritime, underpinned by distribution partnerships with major players in each segment and over 150 customer trials underway.
On a standalone basis, OneWeb’s revenues are expected to reach €50m in FY 2023, €150 – 250m in FY 2024, €300 - 500m in FY 2025, and to exceed €600m in FY 2027.
The proposed combination of Eutelsat and OneWeb will generate substantial value, tapping into significant revenue, cost, and capex synergies:
Average annual revenue synergies of c. €150m by year, thanks to the acceleration of OneWeb’s commercial ramp-up, the speeding-up of time-to-market for OneWeb products with combined GEO/LEO bundle offers and a one-stop-shop experience for customers, and the development of new integrated offers, with single hybrid terminals, a flexible service catalogue and a seamless unified customer experience, unique in the industry.
Annual run-rate pre-tax cost synergies over €80m by year, thanks to Opex optimization coming mostly from avoidance of cost ramp up and cost duplication between the two entities. Synergies will include personnel as well as non-personnel costs, although no layoffs are required to achieve the target.
Average annual capex synergies of c.€80m from year 1, through:
The rightsizing of OneWeb’s Gen 2 constellation by leveraging the hybrid GEO/LEO satellite infrastructure compared to a standalone plan, with a hybrid infrastructure requiring fewer and/or smaller satellites.
The rationalization of Eutelsat’s long-term GEO fleet by focusing on Video hotspots and ad-hoc complements to LEO capacity with the traffic from legacy GEO connectivity assets migrated to LEO.
On-ground rationalization, with the mutualization of ground infrastructure (operation centers, teleports, baseband, fibers), the convergence of IT systems, and synergies on infrastructure development costs.
Scale impact, with greater purchasing efficiency linked to larger procurement volumes of both satellite manufacturing and launch services.
These sources of incremental value creation represent a balanced split between revenues, costs, and capex. Taken together they equate to a net present value of over €1.5bn after tax net of implementation costs.
The proposed transaction provides a platform for both entities to create value while transforming their respective growth profiles and cash generation potential.
The combined entity is expected to have revenues of circa c. €1.2bn for FY 2023. From this base, revenues are expected to grow at a double-digit revenue CAGR over the medium to long-term, reaching €1.35-1.45bn in FY 2024, €1.55-1.75bn in FY 2025, and c. €2.0bn in FY 2027.
EBITDA for the combined entity is expected to grow at a double digit CAGR over the same period, outpacing revenues growth, rising from c. €700m in FY 20236 to a range of €750m to €850m in FY 2024, €900m to €1.1bn in FY 2025, and c. €1.4bn in FY 2027. ■