Hughes Sale a Logical Exit for Apollo, Say Observers
Hughes Communications is looking for a buyer and has hired Barclays Capital to help auction the company, Reuters reported. Hughes declined to comment Friday. The report, which cited four unnamed sources, said Hughes has been through a round of bids, and another is to begin in February. Industry observers said the sale is a logical next step for the majority owner, Apollo Management, a private equity firm. The first round of bids came largely from private equity firms and other satellite companies, according to Reuters. Hughes shares ended Friday at $60.86, up 18.2 percent.
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Apollo, which has been an investor since 2004, may be frustrated with the “depressed” valuation of Hughes as a public company, Chris Quilty, an analyst at Raymond James, said in a note to investors. The company has been valued in recent years at two to four times EBITDA, far less than its peers. The most comparable company, WildBlue parent ViaSat, has been valued at seven to 10 times EBITDA, said Quilty. “For Apollo, selling Hughes is one of the few sure ways to resolve a trading liquidity trap,” he said.
Apollo has a history of satellite investments, having previously had stakes in Intelsat and LightSquared predecessor SkyTerra. Apollo, “as a private equity firm, has never been a long-term investor and generally looks to have an exit strategy that can be implemented within 3-5 years of making an investment,” said a satellite industry executive. “With Hughes stock doing well, prospects for some satellite opportunities in broadband on the horizon, and the market in general being good, Apollo probably thinks this is an excellent moment to execute an exit strategy."
A sale of the company isn’t expected to face major regulatory hurdles, though that could depend on who the buyer is. “I doubt if there would be any major concerns or issues at all,” said the executive, who isn’t directly involved with Hughes or the bidding process. “Unless it is something weird like predominantly Chinese companies that are the purchasers, that would not be a meaningful obstacle, but just a hoop that the purchasers would have to go through to get FCC approval,” the executive said. Otherwise, a sale would likely come down to the transfer of control of Hughes’s FCC licenses, as is typical in such deals, the executive said.