Gilat to acquire US co Stellar Blu for $245m

Israeli company Gilat Satellite Networks Limited (Nasdaq: doctrine; level:doctrine) announced the signing of a definitive agreement to acquire San Diego-based in-flight Internet company Stellar Blu. Gilat will pay $98 million upon closing of the deal and another $147 million subject to commercial and financial milestones.

Gilat already provides solutions in the IFC market including modems and amplifiers, while Stella Blu has developed electronically directed antennas (ESA) so that the two companies complement each other in the IFC market. The deal will contribute to its non-GAAP earnings from the second half of 2025, Gelatt says.

Gilat CEO Adi Sfadia explains that Stellar Blu specializes in electronic antennas, specifically for internet in aircraft. He adds that it is the first on the market to have a working antenna and has currently started delivering units and is busy accelerating serial production. “An aircraft antenna is usually connected to a special connector and this increases its size and thus leads to fuel wastage, because there is resistance,” says Safadieh. “The Stellar Blu antenna, on the other hand, is unique because it has a narrow profile.”

Safadiyeh adds that the emergence of low-flying satellites made it possible to penetrate electronic antennas (which are cheaper than mechanical antennas that are more prone to malfunction), because with the type of satellites that existed in the past, when an airplane flies over the Earth, the antenna poles will not receive the satellite, while Today there is always a satellite above it and it is known to switch between satellites without interruption of transmission. Sfadia says that Stellar Blu currently has a backlog of orders of over 800 units and has received advance payments on them, so it is already possible to expect that revenues 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 the development center in Poland.

If Stellar Blu is accelerating production with great sales, why sell it to Gilat?

Svadia: “This is a question that should be asked to sellers, but I can say that they did not plan to sell, we approached them. I think everyone involved in this area understands that there is a strategic relationship between two companies that focus on the offer combining immediate cash payment and future payments that depend on the volume future supplies, revenues and orders, which gives sellers the balance between reducing the risk that is always present in accelerating production, and the opportunity to make more money, if the company does what we think it should do.”

Svadia does not believe there will be any problems with the deal being approved by antitrust regulators, and notes that there have been larger deals in this area that have been approved. He remembers the Comtec-Gelat deal that was also approved at that time. Gelat was supposed to be sold to Comtech for more than $500 million in 2020, but the deal was canceled and Gelat received compensation from the buyer.

Gilat had $104 million in cash at the end of the first quarter. Safadia comments that the financing of the deal will be mainly from Gilat's own sources. “Today we have more than $100 million in cash with very little debt, and a total of just under $100 million net in the bank,” he says. “We have existing cash flow that we generate every quarter, and there is also a line of credit or loans that we can take out right now.” We have any plans to increase debt, and with regard to 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 inflight connectivity market look like today?

“The market has been operating at peak strength post-Covid pandemic. Generations has witnessed two consecutive years of record orders from customers in the sector and 2024 has also started well. The synergy between Stellar Blu allows customers to receive everything under one roof.”

Gelat is traded on the Nasdaq and Tel Aviv stock exchanges. The company's stock price fell 3.24% on the Nasdaq to $5.27, giving it a market capitalization of $289.5 million.

Published by Globes, Israel Business News – en.globes.co.il – on June 17, 2024.

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