Israeli company Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE:GILT) has announced the signing of a definitive agreement to acquire San Diego-based in-flight Internet connectivity (IFC) company Stellar Blu. Gilat will pay $98 million on completion of the deal and a further $147 million subject to business and financial milestones.
Gilat already provides solutions in the IFC market including modems and amplifiers while Stella Blu has developed electronically steered antennae (ESA) so that the two companies will complement each other in the IFC market. Gilat says that the deal will contribute to its non-GAAP profit from the second half of 2025.
Gilat CEO Adi Sfadia explains that Stellar Blu specializes in electronic antennas, mainly for internet in airplanes. He adds that it is the first in the market with a working antenna and is currently starting to deliver units and is busy accelerating serial production. Sfadia says, "Usually an antenna on an airplane is connected with a special connection and this increases its volume and thus creates a waste of fuel, because there is resistance. On the other hand, Stellar Blu's antenna is unique because its profile is narrow."
Sfadia adds that the rise of low-flying satellites enabled the breakthrough of electronic antennas (which are cheaper than mechanical ones that are more prone to break down), because with the type of satellites that existed in the past, when a plane flew over the poles the antenna would not receive the satellite, while today there is always a satellite above it and it knows to switch between satellites without interrupting transmission. Sfadia says that Stellar Blu currently has a backlog of orders of over 800 units and has received advances on them, so it can already be forecast that revenue from this activity will be $100-150 million in 2025. Stellar Blu has 65-70 employees at its headquarters in San Diego, its center in Texas and development center in Poland.
If Stellar Blu is accelerating production with significant sales, why is it being sold to Gilat?
Sfadia, "That is a question that should be asked of the sellers, but I can say that they did not plan to sell, we approached them. I think everyone involved in the field understands that there is a strategic connection between two companies that focus on IFC. The offer combines immediate cash payment and future payments that depend on the amount of supplies, revenue and orders in the future. This gives the sellers a balance between lowering the risk that always exists in speeding up production, and the chance to get more money, if the company does what we believe it should do."
Sfadia does not believe that there will be any problems in approval for the deal from the antitrust regulators and mentions that there have been bigger deals in the field that have been approved. He recalls the Comtech-Gilat deal that was also approved at the time. Gilat was supposed to be sold to Comtech for over $500 million in 2020, but the deal was canceled and Gilat received compensation from the buyer.
Gilat had $104 million in cash at the end of the first quarter. Sfadia comments that the financing of the deal will be mainly from Gilat's own sources. He says, "Today we have over $100 million in cash with little debt, and in total a little less than $100 million net in the bank. We have a current cash flow that we generate every quarter, and there is also a line of credit or loans that we can take. At the moment we have no plans to raise debt, and regarding issuing shares, we will consider it at the right time and at the right price, but at the moment it is not in the financing plan."
What does the connectivity market on aircraft look like today?
"The market has been operating at peak strength after the Covid pandemic. Gilat has had two consecutive years of record orders from customers in the sector and 2024 has also begun well. The synergy between Stellar Blu allows customers to receive everything under one roof."
Gilat is traded on Nasdaq and Tel Aviv. The company's share price is down 3.24% on Nasdaq at $5.27, giving a market cap of $289.5 million.
Published by Globes, Israel business news - en.globes.co.il - on June 17, 2024.
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