from the ground up - april 2013

Near Earth LLC /23

From The Ground Up Volume 9, Issue 1

SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING

FROM THE GROUND UP April 2013

THE WAY WE SEE IT…

Satellite: Intelsat priced its a scaled back IPO (ticker: I) at $18, below the bottom of its $21-$25 range, giving equity investors a significantly levered opportunity to own the world’s largest satellite company while helping to reduce debt on its balance sheet. Shares were trading above $20.50*Rumors circulated that Fox and at least one other broadcast network were considering ceasing broadcast transmissions and going to a pure subscriber TV distribution, allegedly under pressure from DISH Network’s Hopper ad-skipping technology and Aereo’s internet distribution. It seems those fat retransmission fees that have cropped up in recent years are quite addictive*Satellite M2M carrier ORBCOMM ordered double meat and dined on asset tracking/monitoring firm MobileNet and Globaltrak, closing both transactions on the same day (April 3rd). (Note: Near Earth advised ORBCOMM on the MobileNet transaction) Startup commercial weather imagery provider GeoMetWatch announced a $185 million strategic partnership and hosted payload agreement with AsiaSat, breaking ground on two fronts: satellite based commercial weather services as well as a commercial hosted payload from GEO.

Telecom: Former poker player Charlie Ergen’s DISH Network went all-in with a $25.5 billion cash and stock bid for wireless operator Sprint, muddying the waters for Softbank which had earlier bid for 70% of Sprint. This comes after Charlie’s still-standing $5.15 billion bid for Sprint’s majority-owned Clearwire, the rest of which Sprint is also concurrently trying to pry out of the hands of Clearwire’s difficult-to-please minority shareholders. Sprint shares subsequently traded at a premium to DISH’s $7.00 bid, implying we may have seen the flop, but not the river card. If successful, the DISH/Sprint merger would finally create a voice/video/data juggernaut that would represent a strong competitor to telco and cable providers. Of course, complicating matters further, that very same day news broke that Verizon Wireless offered as much as $1.5 billion for some of Clearwire’s spectrum assets. Finally in the wild world of wireless mergers, Deutsche Telekom secured shareholder approval for its acquisition of MetroPCS. In an attempt to placate ornery hedge funds, DT had resorted to increasing the value of its offer by around $3 a share.

Aerospace: European aerospace giant EADS (parent of Airbus, Astrium and Eurocopter, among others) completes a long-sought restructuring of its ownership structure, providing an exit for non-aerospace companies Daimler and Lagardere and reducing the influence of the French, German and Spanish governments on the company’s governance*Orbital’s Antares medium lift launcher successfully made its maiden launch attempt, giving America two ways to get to the International Space Station, at last. Congrats to the Orbital team*And in news from the very frontier, famed hecto-millionaire and space tourist Dennis Tito announced his Inspiration Mars Foundation, which has plans to perform a human flyby of Mars by 2018.

Hoyt Davidson [email protected]

(212) 551-7960

John Stone [email protected]

(646) 290-7796

Ian Fichtenbaum [email protected]

(646) 290-7794

Inside this Issue:

Page 1: The Way We See It- Satellite, Telecom and Aerospace News

Page 3: Weather: The winds of change are coming Page 8: M2M Landscape – where are we, where are we going? Page 12: Conference Roundup: 29th Annual National Space

Symposium Page 17: Guest Column: The Revolution Continues Page 20: Near Earth Analysis: Market Comparables Page 21: Near Earth Analysis: M&A Transactions

See Last Page for Important Disclosure Member FINRA

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Near Earth Indices - Last Twelve Months

Satellite Wireless Telecom NASDAQ

See page 20 for details on index components

Near Earth LLC /23


Recent Near Earth Activities

Near Earth LLC is a recognized expert for specialized investment banking and advisory services to management and boards in the satellite, telecom and aerospace sectors. Near Earth also makes its capabilities available to hedge funds, private equity firms and government. Our boutique level of service and dedicated industry focus differentiate our services.

Near Earth LLC /23


Weather: The winds of change are coming

The first era of commercial satellite imaging is now behind us. Its end was signified by the merger earlier this year of GeoEye into DigitalGlobe to become one large provider of high-resolution satellite imagery to governments, militaries, intelligence agencies, private businesses and your occasional search engine portal. However jostling the journey, it can at least be said that this section of the commercial satellite imaging industry has finally reached some maturity. With a market cap hovering around $2 billion, a diverse set of clients and stable revenue base, only 50% of which is from the U.S. government, DigitalGlobe has at least shown one model of how it is possible to transition a function once thought intrinsic to government over to the private sector. All it took was a decade of inconsistent market growth, a few corporate restructurings and re-brandings, some launch failures, two global recessions, two major U.S. military engagements and three major governmental support programs. As with most things in life, no one said it would be easy. All chiding aside, we are glad to see yet another satellite industry to go from where government is the owner, operator and sole customer to where it is ‘just’ another, albeit large, customer and shareholders own the owner/operators. It happened in the fixed telecom services business and the high resolution imagery market is starting to look that way too, even if the process ended with consolidation down to one firm. But no rest for the weary - the second era of commercial satellite imaging already has no shortage of challengers to the champion. For instance, Astrium’s recently launched Pleiades satellites offer DigitalGlobe-level high resolution imagery. Moreover, in the mid 1 to 5 meter resolution range, newer players such as Skybox Imaging, Cosmogia and Blackbridge’s RapidEye constellation should provide competition on temporal as well as spatial resolution, betting that hordes of cheap small satellites can provide greater value from frequent revisits and video than the value sacrificed by using lower resolution. In the case of the first two, both Silicon Valley firms backed by venture capital, it will be a chance to see how hacker entrepreneurialism can take on the traditional satellite industry. We do think that they can give big aerospace a run for its money on cost, but we’re particularly eager to see how an open source attitude to data analytics can open up imagery to large new commercial markets while enabling new capabilities for government users. It fits right into the military’s new procurement mantra “Innovation, Resiliency, Affordability.” Outside of simple imagery, we already see more commercial cooperation with government in specialized areas like hyperspectral imagery and synthetic aperture radar (SAR) data. Both Astrium and MacDonald Dettwiler are partnered with the German and Canadian governments respectively on SAR systems. Most of this data tends to be needed primarily by governments for land use surveys, botanical monitoring,

DigitalGlobe has * shown one model of how it is possible to transition a function once thought intrinsic to government over to the private sector

In the case of the * Silicon Valley firms* it will be a chance to see how hacker entrepreneurialism can take on the traditional satellite industry

Near Earth LLC /23


Weather: The winds of change are coming (cont.) coastal surveillance and border security so governments are the funders and the primary customers of these systems. But, even in these cases the private operator shares risk and profit by building, launching and operating the systems while providing services to their anchor government customer. This arrangement has allowed governments to keep a lid on costs while allowing commercial demand to emerge. In most cases, the arrangement works well enough that one wonders what other similar tasks can be implemented with creative public private partnerships in the satellite sector. While the most advanced spy satellites will always be too sensitive and most scientific craft too specialized in their mission and GPS/navigation too important as a universal free service, we do think there is one area that could benefit from a move into greater commercial involvement. One that huge swaths of the American and world economy depend on for accuracy and responsiveness, one everyone talks about but, as is often said, nobody does anything about. We refer specifically to weather. Weather satellites are in many ways the antithesis of new in the satellite industry. The first successful weather satellite, TIROS-1, was launched in April 1960, more than two years before Telstar, the first communications satellite. Today, weather satellites are an almost ubiquitous interface between satellite technology and the population as a whole, providing maps and forecasts right to the newspapers, the local news and to the computer screen. In the United States, the business of weather monitoring and forecasting is handled by NOAA’s National Weather Service (NWS), a sprawling nationwide network of dozens of forecasting offices staffed with five thousand employees. Founded in 1870 as the Weather Bureau, it runs radar stations, deploys weather balloons and analyses weather satellite data in cooperation with NOAA’s National Environmental Satellite, Data, and Information Service (NESDIS). NESDIS, for its part, operates the satellites, specifically a mix of 9 polar orbiting and geostationary spacecraft from which it generates, among others, most of those ubiquitous forecast maps. For the most part, the NWS does its job well and, aside from the usual grumbling about missed forecasts, usually does not catch the ire of the public. Even the most hardcore of small government conservatives would concede that weather forecasting is a critical role of the government, at a very minimum for national security. But weather forecasting is important, darn it, often too important to be left just to a free government monopoly. As much as 40%1 of the U.S. economy is affected by weather; from financial services, logistics and utilities to transportation, agriculture and

1 Dutton, J. A., 2002: Opportunities and priorities in a new era for weather and climate services. Bull. Amer. Meteor.

Soc., 83, 1303–1311.

*one wonders what other similar tasks can be implemented with creative public private partnerships in the satellite sector.

As much as 40% of the U.S. economy is affected by weather

Near Earth LLC /23


Weather: The winds of change are coming (cont.) recreation. More specifically, it is believed as much as 3.4% of U.S. GDP can be swung by variability in weather patterns2. That’s over a half a trillion dollars of productivity. For this reason, a few private enterprises, such as the famous AccuWeather (www.accuweather.com) and slightly less famous WSI (www.wsi.com) and MDA Information Systems (www.mdaus.com), have formed over the years to make use of their own techniques, systems and networks of observations to augment the NWS. They provide a critical alternative set of products that are valued (and more notably, paid for) by financial organizations, large corporations and media organization nation and world-wide. But while the forecasting and analysis side of weather has a mature and thriving commercial sector, the actual business and operations of collecting raw data from the sky is still government dominated. We think this is somewhat a shame for, as much as the NOAA NESDIS fleet has shown to have done a fine job until now, there is also so much more that it can do to leverage new technologies and innovative new means of collecting weather data. Opening themselves up to public private partnerships to development and operate their next generation satellites is something we would like them to consider, but so far the organization has been adamantly opposed to pursuing in practice. That is why we cheered when we saw the recent news of a startup called GeoMetWatch (www.geometwatch.com) announcing a $185 million development and hosting deal with telecom satellite operator AsiaSat. GeoMetWatch’s plan is to mount Utah State University-developed hyperspectral STORM™ sounder sensors onto six geostationary satellites to provide enhanced commercial weather data to customers worldwide. According to the GMW website, the STORM™ sensors were based on earlier NASA sounding sensors and aim to “revolutionize the prediction of localized severe weather; reduce tropical cyclone path and landfall forecast errors; and improve initialization of global numerical weather prediction models”. AsiaSat, for its part, is providing the satellite hosting and financing in partnership with GeoMetWatch for a share in the revenues of the venture. On a first level, this is a great example of a hosted payload arrangement that is a full partnership between both parties. On a second level, it is an exciting leap of faith that we hope can garner committed customers for their weather data. Two other commercial ventures, PlanetIQ (www.planetiq.com) and GeoOptics (www.geooptics.com) backed by various aerospace companies are pursuing a method called GPS Radio Occultation (or GPS-RO) which uses constellations of small satellites to measure the transmission characteristics of GPS signals as they travel through the atmosphere, the data from which provides critical global measurements of atmospheric

2 Lazo, Jeffrey K., Megan Lawson, Peter H. Larsen, Donald M. Waldman, 2011: U.S. Economic Sensitivity to

Weather Variability. Bull. Amer. Meteor. Soc., 92, 709–720.

*while the forecasting and analysis side of weather has a mature and thriving commercial sector, the actual business and operations of collecting raw data from the sky is still government dominated

* an exciting leap of faith that we hope can garner committed customers for their weather data.

Near Earth LLC /23


Weather: The winds of change are coming (cont.) density, temperature and moisture content. It is particularly useful for vertical resolution and global 3D coverage of the atmosphere. While these measurements are currently performed by a joint U.S./Taiwan constellation called COSMIC that was launched in 2006, both companies cite the need for a longer term replacement with better global resolution from commercial solutions involving much larger constellations of these sensors. We hope that the increasingly developed infrastructure for building and deploying small satellites will play to their advantage. Not all commercial ideas for improving weather data collection and forecasting are satellite-based. Also in recent news was the report that Panasonic Avionics had acquired AirDat’s (www.airdat.com) Tropospheric Airborne Meteorological Data Reporting (TAMDAR) technology. TAMDAR is mounted on a network of commercial airliners and records a sophisticated collection of readings from take-off into the upper atmosphere in locations, in frequencies and at times of day not easily attained by weather balloons. The technology should benefit greatly from being in the hands of Panasonic, which has much experience providing on board equipment for commercial airliners and can support a more muscular marketing effort to prove the value of the resulting forecasts. We think highly of all these ventures, but we again note the conspicuous absence of what we think should be one of the most important partners of all these efforts, NOAA. No doubt they have legitimate concerns and objections to who controls the data sources for critical weather information and who gets priority, but many of these objections were also made in the early days of the commercial satellite imaging industry. One of the ways the early commercial satellite imaging companies gained market acceptance and stability was the careful support it got from the National Geospatial-Intelligence Agency (NGA) through successive purchasing and capital assistance programs, particularly the multi-billion dollar ClearView, NextView and EnhancedView programs. Through these programs, the NGA enhanced its access to reconnaissance data but also got a say in resolving security and priority concerns that were important to the U.S. intelligence community. Although NOAA NESDIS maintains an Office of Space Commercialization, we know of no program of similar scale to NGA’s. The fact that a U.S. company like GeoMetWatch had to go beyond the U.S. and partner with an Asian satellite operator shows the work that needs to be done to change the ways of doing business. Perhaps that announcement will do some much needed turning of heads at NOAA and in Congress. It is time for NOAA to stop dragging its feet on commercialization and help unleash the creative talents of a free market to bring these new more accurate weather technologies to the end users – basically everyone. What American tax payers do not need is more delayed drastically over budget programs like NPOESS. We need commercialization supported by a robust public – private partnership.

GPS-RO * provides critical global measurements of atmospheric density, temperature and moisture content

It is time for NOAA to stop dragging its feet on commercialization and help unleash the creative talents of a free market

Near Earth LLC /23


Weather: The winds of change are coming (cont.) In a broader view, in an age where any peasant with a smartphone can look at the world’s beauty through Google Maps at will, it bears remembering what the world from above looked like before the age of commercial imagery and ubiquitous digitization. The first age of satellite imagery was for spies and a select handful of government scientists and geographers deemed worthy of access to these amazing space cameras. Then Landsat and other civilian cameras came along and then it was finally open to knowledgeable researchers who knew how to handle and process the indecipherable mounds of data starting to come from these devices. The products of that era produced many an inspiring wall poster but, even then, it lacked a certain touch. Then came IKONOS, the first commercial imaging satellite launched by then operator Space Imaging. I remember it well. Where once satellite imagery data was confusing and drab in engagement, the IKONOS photos were exciting and broke the mold. Home screens on the Space Imaging website would show crisp high resolution images of Olympic facilities, elaborate cityscapes, strange landscapes, even the filming location of the newest Survivor season. Every week would be a new featured photo. Commercial was playful, creative, innovative, even when nakedly self promoting. What a joy. Even though much of their revenue base would still be dependent on the government, here was a group of people who knew how to bring life to their product in ways that being within a government organization would never allow. When it comes to commercial weather offerings, we might prefer accuracy and timeliness above joyfulness, but we still can enjoy the creativity of entrepreneurial capitalism in trying new techniques and technologies. For the sake of the potential benefits of these new weather ventures, we say with earnestness, that we hope that neither snow nor rain nor heat nor gloom of night stays these satellites from the swift completion of their appointed rounds.

By Ian Fichtenbaum

Near Earth LLC

The first age of satellite imagery was for spies and a select handful of government scientists and geographers deemed worthy of access

Commercial was playful, creative, innovative, even when nakedly self promoting. What a joy

Near Earth LLC /23


M2M Landscape – where are we, where are we going?

Back in September 2009, we published an article (See www.nearearthllc.com/analysis/presentations/vol5.9.2.pdf) on the incipient growth of the M2M sector, beating the drum that an array of factors ranging from slowing wireless handset revenue growth to better geospatial data to cheaper chipsets would revitalize its investment thesis. Three and a half years hence, I thought it worthwhile to look back and see how far we’ve come, and where we might be going. Let’s begin with an overview on the structure of the sector. Here at Near Earth, we view the M2M value chain as consisting of the following functional subsectors, with the respective players operating in one or more of them.

As you can see, we’ve noted that the overriding strategy thrust transitions as one moves across the value chain, with scale being the emphasis at one end while specialization rules at the other. In addition to guiding the strategy for the players in a respective vertical, to date this has also tended to result in the respective market participants focusing their attention to one or more immediately adjacent portions of the chain. However, as we discuss below, this tendency is weakening over time in our view. Looking across the landscape, let’s take a look at each sub-sector in turn, with the idea of forming a holistic view of M2M overall. Carriers – As we presaged in our prior article, more recently M2M has become much more important to the carriers, which heretofore were much more focused on selling phones and plans to consumers and businesses. Each of the wireless and satellite carriers now has substantial human and financial resources devoted specifically to M2M. Each has retooled their data offerings to be more attractive to M2M users directly, rather than focusing on a reseller strategy. And, most tellingly, there have been some impressive investments made to acquire capability in the M2M sector through inorganic growth, reflecting both time pressures as well a shortage of expertise as M2M has grown overall. Perhaps most spectacular was Verzion’s acquisition of Hughes Telematics for $612 million for a whopping 7.9x revenues – reflecting their view of the potential for tapping the market of consumer vehicles as subscribers (penetration of M2M amongst fleet operators, while still growing rapidly, is relatively more mature).

overriding strategy * transitions as one moves across the value chain, with scale being the emphasis at one end while specialization rules at the other

*more recently M2M has become much more important to the carriers

Near Earth LLC /23


M2M Landscape (cont.)

Over time, we expect this trend to continue and even accelerate as the carriers find that more and more of their “subscribers” don’t have flesh and blood. Consider that industry forecasters Analysys Mason expect the number of connected devices to grow to 1.2 billion by 2021 – a compound annual growth rate of 36% - dwarfing revenue growth from conventional cellular traffic. In other words, starting now, the growth engine for the carriers is M2M. In the satellite world, where M2M was early to garner carrier interest, we’ve seen the carriers invest heavily in expanding across the value chain – with a substantial investment in SkyWave in Inmarsat’s case and no fewer than four acquisitions by pure play M2M carrier ORBCOMM [including MobileNet, where Near Earth LLC advised]. In both these cases (and through Inmarsat’s Stratos and Ship Equip acquisitions – which focused on non M2M traffic) the satellite carriers are transforming themselves into one stop shops pushing along the value chain all the way to the end user. We expect this trend to accelerate going forward for both satellite and terrestrial carriers that increasingly become much more than providers of commodity bandwidth. Mobile Virtual Network Operators – M2M first came on the scene when the adoption S curve for the cellular market was steep and carriers were racing to build out their marketing, distribution and communications infrastructure – and frankly didn’t want to be bothered with a tiny upstart technology. Capitalism being what it is, MVNOs filled the niche with repackaged airtime into more M2M friendly formats, provided higher levels of customization and customer service and generally aggregated the initially small demand to levels where carriers were willing to talk. But, as M2M traffic has grown exponentially, pure M2M MVNOs are becoming increasingly unneeded in our view. Consequently, we expect the carriers to appropriate their strategies, disintermediating the MVNOs in the process, and where the valuations are compelling, acquiring them as well. This mirrors the earlier case of the voice (principally prepaid) MVNOs, which have largely become captive brands of the incumbent carriers (e.g. Boost Mobile, Virgin Mobile, etc.). Alternatively, the existing MVNO’s will respond by transforming themselves, both organically and through acquisitions, into operations that capture more of the M2M value chain. We therefore expect today’s leading MVNO’s will look very different in the next few years – or they will have different owners. Device Manufacturers – Compared to the mature space of the carriers, the M2M device space is very much the wild, wild west. In this sector, manufacturers ride the wave of exploding demand, while trying to hold back the forces of commoditization and price erosion. New standards (e.g. 802.11p, LTE, Weightless 1.0 etc.) come on to the scene, each requiring

In the satellite world* we’ve seen the carriers invest heavily in expanding across the value chain

We therefore expect today’s leading MVNO’s will look very different in the next few years – or they will have different owners.

Near Earth LLC /23


M2M Landscape (cont.) substantial nonrecurring engineering and each running the risk of being stillborn like Ultra Wide Band or WiMax. Similarly, as old standards (think AMPS, 2G) stop being supported, it is forcing everyone from hardware vendors to end users to jump through hoops, allegedly for their own good. In this sector too, we are seeing expansion across the value chain. Some home grown examples include Digi’s iDigi Device Cloud (effectively a captive MVNO) and Telit’s m2mAIR offerings (bolstered by the Crossbridge acquisition), while CalAmp recently expanded into this sector with its acquisition of network operator Wireless Matrix. Of course, as noted in our diagram above, going big is also an advantage in this subsector, so we have seen acquisitions that are more to build scale rather than expand beyond devices (e.g. Telit/Motorola, and others). We expect both acquisition trends to continue. Network Operators – With less pressure to grow for growth’s sake and the ability (or is that a luxury?) therefore to specialize to a greater degree, the M2M Network Operator space has the largest number of players in our universe. Here the growth emphasis has largely been organic, taking advantage of the relatively low penetration (and concomitant growth opportunities) that most M2M subsectors have. In cases where relative market maturity (e.g. truck fleet monitoring/tracking) restrains growth, or alternatively where capital is cheap (like for Fleetmatics, which recently bolstered their cash reserves with a $192.5 million secondary) we expect operators will be more acquisitive. And, on the disposition side, we wouldn’t be surprised to see a spinoff or IPO of General Motors’ OnStar unit, which could be valued north of $5 billion, a number that we doubt is fully reflected in its parent’s stock price. Application – With the ability to scale that software alone can provide and the freedom to work with a variety of hardware vendors using different interfaces, we have been bullish on building block application providers like Axeda and Sensorlogic for some time. And, while we remain so for the future, to date this sector has been more promise than practice. We believe that this largely reflects the immaturity of the subsector, and in particular limited experience with end users and integrators. As M2M blossoms and end users and integrators need less hand holding, we expect this issue to disappear with time. So, while we may be a little early in our call, we remain committed to our bullish view. Integrators – As noted above, end users are still trying to figure out how to take advantage of the rich data and remote management opportunities that M2M offers. This is where the integrators come in. With end users focused on ROI, skilled integrators that can deliver it via M2M solutions are thriving. With low capital requirements (the main assets here are human capital, not plant and equipment) and many niches to fill, this subsector offers opportunities for competitors small and large. Many firms

as old standards stop being supported, it is forcing everyone from hardware vendors to end users to jump through hoops, allegedly for their own good

*end users are still trying to figure out how to take advantage of the rich data and remote management opportunities that M2M offers

Near Earth LLC /23


M2M Landscape (cont.) focused elsewhere on the value chain are finding that captive integrators can be profitable as well as serving as a sales channel for their parents. Likewise, independent integrators may make tasty acquisition targets for firms that wish to add or augment their captive operations. With close customer ties (and thus, market knowledge) and a plethora of market participants, we expect the integrators (independent and captive) to lead the continued expansion for M2M. So there you have it – a bit of a review of how we got here, with a few predictions thrown in for good measure. Let’s check back in couple of years and see how this all turns out! In the mean time, here at Near Earth, we’ll be helping to make it happen.

By John Stone Near Earth LLC

independent integrators may make tasty acquisition targets for firms that wish to add or augment their captive operations

Near Earth LLC /23


Conference Roundup: 29th Annual National Space Symposium First of all, congratulations to the Space Foundation for pulling off a very productive and enjoyable National Space Symposium despite the challenges of sequestration. Military attendance was certainly far below normal levels and NASA was totally absent, but the event easily shifted to a very worthwhile industry-to-industry focused networking opportunity. Innovation, Resiliency and Affordability If there was a theme to this year’s Symposium it had to be the one laid out convincingly by General Shelton, Commander of Air Force Space Command. In his opening keynote speech, General Shelton introduced a new aerospace/defense procurement world to be driven by “Innovation, Resiliency and Affordability.” This theme carried throughout the week and was firmly secured into consciousness at the Acquisition Lunch by Brig. General Teague, Director, Strategic Plans, Programs and Analyses, Air Force Space Command. I think I lost count at six uses of the phrase “Innovation, Resiliency and Affordability” – message clearly delivered, going down a new path, no more business as usual, money is tight. Having attended the Symposium on and off for over a decade, I can attest to the fact that Defense and Civil procurement has always been a hot topic of discussion. That all parties agree the process is broken and unsustainable has become as common knowledge as the lack of easy solutions. This time seems different. There is nothing like staring into a decade of declining Defense budgets to focus one’s attention on actually solving the problem. Of course, we should retain a high degree of skepticism. Plans are one thing, execution another, but this is not the “faster, better, cheaper” pipe dream of a few years ago. That never had a chance. This actually sounds like a new and smarter approach to acquisition. Thanks to numerous advancements in technology, the new options available to us might even allow this strategy to work. But what does “Innovation, Resiliency and Affordability” really mean? I think we can assume, at the very least, that it means the normal practice of maximum performance at any cost and zero risk, or as one aerospace CEO described their goal, perfect product delivery, is no longer the guiding principle. Apparently, “perfection” is no longer affordable, and apparently not that resilient or flexible either. I do not, however, think this means a whole new level of risk tolerance by the government customer. Mission assurance is still of paramount concern, just not at any cost and on any time frame. Instead, the idea appears to be to use technological “innovation” and new system architectures to achieve sufficient performance at still very low levels of mission risk and to perhaps even achieve lower levels of risk through higher system level resiliency. Kind of like faster, good enough to get the job done, cheaper.

I think I lost count at six uses of the phrase “Innovation, Resiliency and Affordability”

Of course, we should retain a high degree of skepticism. Plans are one thing, execution another, but this is not the “faster, better, cheaper” pipe dream of a few years ago

Near Earth LLC /23


Conference Roundup (cont.) Generals Shelton and Teague stated that this would mean a disaggregation of capabilities, utilizing fractionalized satellite networks based on smaller satellite buses or payloads. It was also said to mean more hosted payloads, fewer dedicated systems and a greater use of commercial services. It sounds like the era of billion dollar super complex satellites that are simply “too big to fail” or lose on launch may have peaked as perhaps have the multi-billion dollar programs like AEHF and SBIRS that have routinely experienced large cost overruns. In its place, is envisioned an era of smaller, more single purpose space hardware, but with many more points of presence. More and smaller is hoped to equal less impact from single unit failures and therefore greater system resiliency. Smaller may also mean simpler manufacturing and testing processes, quicker and lower cost deployment and more flexible response. More importantly, it is hoped to mean accomplishing missions at lower cost. We do not think this new procurement strategy suggests an abrupt sea change nor a total abandonment of large scale satellite procurements, but rather a gradual shift toward smaller where larger has not worked. For instance, successful programs such as WGS may be safe as well as certain national security programs where there may simply be no substitute for size and complexity – laws of physics being neutral on the whole budgeting issue. It is, of course, very hard to tell at this stage if this new strategy will all work out as hoped. In the commercial satellite communication industry there is still a trend toward bigger is better, with high throughput satellites in high demand. Larger and hybrid satellites have meant not only more broadcast power and more frequency bands to exploit at a given orbital slot, but also lower average cost per transponder from sharing a common satellite bus and one launch vehicle. Apparently, this same dynamic is not working as well in a national security environment where design requirements are far tougher, oversight more bureaucratic and costly and production volumes far lower. Thus the push to disaggregation and smaller size: simpler requirements, easier oversight and higher volumes. Who benefits? In addition to the government and us taxpayers benefitting from lower costs, who else should benefit from this new strategy? As Chris Quilty notes in his excellent April 15th issue of Satellite Signals, this “shift toward disaggregation would undoubtedly benefit small satellite specialists such as ATK, Ball Aerospace, and Orbital Sciences*also tend to reduce the Pentagon’s requirement for large EELV-class launch vehicles in favor of medium class rockets such as Orbital’s Antares rocket and SpaceX’s Falcon 9.” [Congratulations to Orbital on the inaugural launch of Antares – COTS is proving to be one of the most cost efficient procurement models ever executed. Hint, hint government, we need more COTS style procurement.] I would also add Sierra Nevada to that list of U.S. satellite manufacturers, and for entirely different reasons, Space Systems/Loral

It sounds like the era of billion dollar super complex satellites that are simply “too big to fail” or lose on launch may have peaked

Thus the push to disaggregation and smaller size: simpler requirements, easier oversight and higher volumes

Near Earth LLC /23


Conference Roundup (cont.) who although not a government contractor or smallsat manufacturer (currently), they know how to make small satellites and have decades of experience providing satellites on commercial terms. It may prove easier for a company with commercial best practices to go small than for a government focused smallsat manufacturer to go commercial. On the launch side, there are a plethora of new small launch vehicles under development as well as the ability to deploy CubeSats and smallsats from the International Space Station. None of this is to suggest that the large incumbent prime contractors are in dire straits. The evolution to smaller satellites has been evident for some time now. Boeing, in particular, has been more aggressive in preparing for this revolution. It has introduced its new Phantom Phoenix line of smallsats with options from 4kg to 500kg. Lockheed and Northrop may have some catching up to do in the sub 200kg size range, but in the 200 – 500 kg range, Northrop has been providing its Eagle line of smallsats to NASA and Lockheed has its LM 900 bus at just under 500 kg. Of course, the near term financial significance of this capability gap will remain unproven until the sub 200kg class proves its worth to the Defense Department and becomes more widely adopted. Skybox Imaging will soon provide an interesting test case for these new smallsat capabilities with their first remote sensing satellite launch planned later this year. There is also the very important question of just how much can be accomplished with the smallest of satellites (e.g. SeeMe, Kestrel Eye), particularly the increasingly ubiquitous CubeSats. Miniaturization of electronics and sensors has come a long way in allowing more to be done with less, but physics does enter the equation at some point in terms of apertures/resolution and power availability. Swarms of satellites and inter-satellite links may address some of these limitations, but the trade-offs are just now being fully addressed. We should soon have a better understanding of where these CubeSats and smallsats fit into Defense Department’s mission requirements and how best to utilize them. Regardless of the ultimate impact of CubeSat and smallsat technologies on Defense procurement, one thing is almost certainly true – there will be a material impact. To us, that suggests a need for larger companies to quickly develop or acquire these new technologies or at least forge partnerships with the most advanced players so they can prevail in contract proposals. This is looking like an industry sector where those that develop a market lead will quickly move down the learning curve and up the efficiency curve and have a clear competitive advantage for years. We also believe this move to innovative (small/clever), resilient and affordable suggests a need for rapid prototyping and rapid flight qualification. If it still takes 5 – 10 years to field a new capability, it will not be affordable or state-of-the art in performance. Luckily, “smaller” opens up several new options such as 3D printing of structures and some

It may prove easier for a company with commercial best practices to go small than for a government focused smallsat manufacturer to go commercial.

This is looking like an industry sector where those that develop a market lead will * have a clear competitive advantage for years

Near Earth LLC /23


Conference Roundup (cont.) components, assembly line production, space environmental testing at ISS with return to Earth, and launch as ride shares, hosted payloads or in large clusters on a wide variety of new vehicles. Providers of these services and capabilities should do well in this new procurement realm. What this may mean for those developing in space servicing capabilities (i.e. relocation, repair, maintenance, refueling) is less clear. We would suspect that in the long term a move to gaining resiliency through mission architecture will result in lower demand for such services as the value of any given unit of the space segment is less and therefore more “disposable,” especially as technical obsolescence is assumed through shorter design lives. The business case for profitably servicing these smaller satellites just may not close. On the other hand, the new strategy could also mean an enhanced desire to extend the lives of the current fleet of high value satellites since they may not get replaced under this new strategy. The near and medium term prospects for in space servicing may therefore actually improve. In space servicing may also evolve to mean in space manufacturing through the assembly of larger structures from smaller units. We shall see. Lastly, if there are going to be far more satellites in orbit then several other space disciplines and services should benefit: • Space situational awareness • Mission planning and software (e.g. Analytical Graphics) • Telemetry, tracking and control (e.g. Universal Space Network) • Interference detection and avoidance (e.g. Glowlink) Government 2.0 A key ingredient to the success of this new procurement strategy will be securing sufficient funding for the early stage development and deployment of smallsat technologies and systems. We have already seen strong interest from DARPA and NASA to support innovation, but dollar levels are still modest versus amounts required to field large constellations. There are a few attractive programs / contracts being bid, but also many competing teams and inevitably there will be lots of underfunded entities. Meanwhile, although many mid to large aerospace firms are dipping their toes into this market, they are rarely set up to act as venture capitalists or to acquire early stage, negative cash flow businesses. Luckily for the sector, a few venture funds (e.g. Khosla Ventures) are starting to focus on a new investment theme some in Silicon Valley are calling Government 2.0. Basically, there seems to be a growing belief among investors that government budgets will be strained for such a long time into the future, that Federal, State and local governments will all have to find new ways to use innovation to lower the cost to taxpayers of the services they provide – not fewer services, but more affordable delivery.

We would suspect that in the long term a move to gaining resiliency through mission architecture will result in lower demand for [in space servicing]

*a few venture funds are starting to focus on a new investment theme some in Silicon Valley are calling Government 2.0

Near Earth LLC /23


Conference Roundup (cont.) This belief is starting to attract money from investors previously very shy about risking capital on government-dependent businesses either because governments have proven to be fickle customers, or expected growth opportunities have been uninspiring. Now, they see an entire multi-trillion dollar ecosystem that needs rebuilding and lots of opportunity to bring commercial best practices to bear. Unfortunately, in many cases, more than $100 million will be required to get a constellation into orbit. Venture funds are frequently good for tens of millions and can join forces for larger amounts, but are much less willing to hit nine figure territory, especially if the total amount required begins with a numeral greater than “1”. From where will these larger amounts come? It is unlikely the public equity market or private equity firms will back these ventures unless there are large and stable government contracts to support the investments or a multi-year successful track record of commercial revenue growth and profitability. That may eventually develop once these new technologies have proven their worth, but for the next few years we suspect most of the large dollars will need to flow from government to the innovators and often through trusted prime contractors. This dynamic may create an interesting balance of power between those with the long standing government relationships and those with the new business models and technologies. As power never likes to be in balance, we suspect there will be two outcomes. Those companies with applications relying solely or heavily on the government customer to reach break-even will most likely end up partnering with the primes as subcontractors or being acquired by the more commercially minded and nimble aerospace firms. These companies will tend to either sell dedicated systems to the government or own and operate systems under strong government anchor tenancy. On the other hand, companies focused on applications with strong commercial, international or consumer demand may be able to break out on their own and eventually acquire government contracts directly. The determining factors will be the mix of business and the business plans scalability. The good thing about “small” is it tends to be scalable. The bad thing about “small” is the size of the market is not yet proven. If the innovation is powerful enough and the markets do develop, this age of Innovation, Resiliency and Affordability – may actually happen. As a tax payer, that sounds pretty good. As a supporter of American innovators and entrepreneurs, it sounds even better.

By Hoyt Davidson Near Earth LLC

Now, they see an entire multi-trillion dollar ecosystem that needs rebuilding and lots of opportunity to bring commercial best practices to bear.

The good thing about “small” is it tends to be scalable. The bad thing about “small” is the size of the market is not yet proven

Near Earth LLC /23


Guest Column: The Revolution Continues

The 32nd Annual Satellite Conference captured the sustained glamour of the satellite industry. There were 12,000 enthusiastic attendees at the Satellite 2013 Conference. Of those, 1,000 attended the presentations and panel discussions. The mood was upbeat because service revenues have continued to grow even during the global economic downturn. The largest satellite operators have procured replacement satellites for the near term but new entrants are ordering additional satellites. Transmission capacity is soaring to meet demand for high data rate services. High Throughput Satellites (HTS), broadband satellites, and Ka-band in particular are beginning to have wide impact, not only for consumer Internet access, but also for FSS point-to-point services. These include satellite news gathering and enterprise VSAT services. User terminal investment costs are much lower, data rates are much higher, and transmission costs are potentially much lower than Ku-band. Hughes ordered Jupiter-2 / EchoStar 19 from Space Systems/Loral on the last day of the conference. HughesNet had 625,000 broadband subscribers at the end of 2012. Use of the recently launched Jupiter-1 satellite was described as “a rocket ship of growth.” ViaSat has 500,000 subscribers, but has not ordered ViaSat-2 yet. The ViaSat-1 satellite has a capacity of about one million users. Last year ViaSat sued Space Systems/Loral, the manufacturer of ViaSat-1. Rumors suggest that other satellite manufacturers are uncomfortable with the stringent terms and conditions dealing with intellectual property. The Viasat CEO says he has not yet figured out how best to expand capacity and lower cost per bit in the next satellites. Intelsat has not yet embraced Ka-band or consumer services. Nonetheless it plans to build the EPIC series, HTS using C and Ku-band frequencies. Intelsat ordered IS-29e last year and will buy its second EPIC satellite IS-33e within a few days. Satellite operators are having wet dreams over the demand of Ultra HD with 4K bits per line. Most people think this is 10 years away in spite of the recent capture of some special events in this resolution. Consumers just bought there latest round of HD sets and are not eager to do it again. Networks are not eager to upgrade again either. ABS news spent $100 Million to change facilities for HD. Among the featured new systems was O3b, backed by SES, which will use a constellation of medium Earth orbit satellites. O3b plans to provide

The mood was upbeat because service revenues have continued to grow even during the global economic downturn

Satellite operators are having wet dreams over the demand of Ultra HD with 4K bits per line

Near Earth LLC /23


Guest Column: The Revolution Continues (cont.) low latency, Internet backbone service to tropical regions using Ka-band frequencies. Skybox Imaging is another new imaginative service, which would provide repeated observation of the earth from low earth orbit. Skybox will use a dozen micro-satellites with one-meter resolution. Export Credit Agency (ECA) financing has been an engine of growth for the satellite industry. The US Export-Import bank has enabled 60% of US satellite financing. COFACE in France has also financed a number of new procurements. ECA support has enabled a number of projects that might not have been funded by commercial banks. In all cases it enables attractive interest rates and has lowered the cost for many satellite operators. Some of us are wondering if this export enthusiasm is creating a bubble of satellite capacity that will result in lower margins in the future. Many satellite operators are excited about the prospects for all-electric propulsion and reduced launch prices offered by SpaceX. The combination of these two breakthroughs is expected to cut the cost of transponders by 30% to 40%. Not all the news was positive for everyone. Worries remain in this high-risk industry. Governments are cutting back budgets in all areas. The US government in particular has sequestered funding for many agencies including the military. The reduction in forces in Iraq and Afghanistan is producing reduced revenues for several of the operators that provide communication services to the US government. Total revenues for Iridium were slightly lower in 2012 than in 2011 in spite of commercial growth. There are concerns about access to space. That means, operators are worried about the recent failures of Proton and Sea Launch rockets. There is subdued worry about the risk of early SpaceX launch failures. Everyone recognizes that the launch process represents a risk and the launch industry has had it ups and downs. Satellite operators prefer oversupply to drive down the launch prices, but the launch service operators have been surviving on thin margins for many years. FSS operators are also concerned about both intentional and unintentional interference with satellite transmissions. The recent rise in use of mobile terminals that track the position of closely spaced satellites has led to frequent mis-pointing to the wrong satellite. Extensive training, carrier identification signals, and equipment improvements are expected to reduce this problem. However, there is a new problem of rogue nations and other mischief makers who are intentionally attempting to jam satellite transmissions for political purposes. Some satellites are being designed to thwart these sources of interference.

ECA support has enabled a number of projects that might not have been funded by commercial banks

FSS operators are also concerned about both intentional and unintentional interference with satellite transmissions

Near Earth LLC /23


Guest Column: The Revolution Continues (cont.) Hedge funds and speculative investors continue to look for opportunities in space. Professional investors are planning IPOs for Intelsat and Telesat. Intelsat recently announced that it will scale back its offering from $1.5 billion to $750 million. The COM DEV board has been forced to incorporate hedge fund shareholders into its board. Hedge funds are scouring the industry for equipment supplier to turn a fast profit. Globalstar is starving for cash now that it has returned to service. The Globalstar 2 satellite order for additional satellites was suspended. This will leave Globalstar with a constellation of only 24 Globalstar-2 satellites after the remaining 8 Globalstar-1s fail to provide two-way service in the next few years. At that point, the quality of service will degrade again since Globalstar needs 32 satellites for continuous service. Operators are concerned that the International Telecommunications Union (ITU) will open up satellite frequencies in C-band for shared use by terrestrial operators. The satellite operators want exclusive use of these bands to minimize interference with satellite services. Terrestrial operators need additional spectrum for mobile services like smart phones and argue that the C-band frequencies are unused in certain parts of the world and lightly used in other areas. The largest operators plan to being campaigning prior to the World Regulatory Conference in 2015 (WRC 15).

By Roger Rusch

TelAstra Inc.

Roger Rusch is an expert on the satellite telecommunications industry and is President of space consulting firm TelAstra Inc. For a full set of notes from the conference contact: [email protected]

Terrestrial operators need additional spectrum for mobile services * and argue that C-band frequencies are unused in certain parts of the world and lightly used in other[s]

Near Earth LLC /23


NEAR EARTH ANALYSIS: MARKET COMPARABLES

Public Market Valuation Analysis of Selected Companies in the NEAR EARTH INDEX($ in millions, except per share data) Stock Price: Enterprise Value as a Multiple of: Price as a Multiple of:

4/23/13

Market

Value of

Equity

Enterprise

Value (a)

LTM

Sales

LTM

EBITDA

LTM

EBIT

LTM

EPS

Trailing

EPS (b)

Forward

EPS (b)

Fixed Satellite Services (FSS)

I Intelsat S.A. 20.60$ $2,111.27 $17,480.18 6.7x 8.7x 14.7x n/m n/m n/m

SESG.PA SES Global S.A. ( c) 23.34€ $12,287.42 $17,572.62 7.4x 10.0x 17.1x 14.6x 20.5x 20.5x

ETL.PA Eutelsat Communications ( c) 27.47€ $7,824.13 $10,314.36 6.3x 8.1x 12.1x 17.3x 25.0x 14.8x

SATS EchoStar Corporation 38.64$ $3,384.86 $4,335.13 1.4x 7.3x 32.7x 14.6x n/m n/m

Mean 5.5x 8.5x 19.2x 15.5x 22.7x 17.6x

Mobile Satellite Services (MSS)

ISAT.L Inmarsat plc (f) 7.17£ $4,895.84 $6,386.24 4.8x 9.2x 14.5x 17.0x 13.8x 13.5x

IRDM Iridium Communications Inc. 6.74$ $515.35 $1,012.72 2.6x 4.9x 9.6x 8.0x 7.2x 5.6x

ORBC ORBCOMM Inc. 4.50$ $210.51 $150.54 2.3x 9.0x 15.7x 24.3x 37.5x 37.5x

GSAT Globalstar Inc. 0.29$ $118.43 $857.67 11.2x n/m n/m n/m n/m n/m

Mean 5.2x 7.7x 13.3x 16.4x 19.5x 18.9x

Satellite Ground Segment

CMTL Comtech Telecommunications 23.78$ $404.74 $251.81 0.7x 4.2x 5.6x 16.7x 29.0x 21.2x

GCOM Globecomm Systems Inc. 12.26$ $287.86 $231.94 0.6x 7.7x 12.9x 17.5x 18.3x 15.1x

GILT Gilat Satellite Networks 5.70$ $234.73 $219.99 0.6x 7.4x 31.2x n/m 24.8x 25.9x

KVHI KVH Industries, Inc. 13.21$ $196.83 $169.10 1.2x 15.1x 25.7x n/m 30.7x 20.0x

VSAT ViaSat Inc. 47.50$ $2,071.48 $2,549.64 2.4x 20.1x n/m n/m n/m n/m

RNET RigNet, Inc. 23.58$ $370.21 $371.76 2.3x 9.2x 16.4x 31.3x 22.2x 17.1x

RRST RRsat Global Communications Network Ltd. 8.12$ $140.88 $114.52 1.0x 6.2x 11.9x 17.0x 15.6x 15.6x

Mean 1.3x 10.0x 17.3x 20.6x 23.4x 19.2x

Satellite Space Segment

ORB Orbital Sciences Corporation 17.30$ $1,031.43 $949.85 0.7x 6.3x 8.4x 15.3x 16.3x 14.7x

CDV.TO COM DEV International (d) 3.66$ $271.85 $256.77 1.2x 9.3x 14.2x 16.8x 13.6x 15.3x

MDA.TO MacDonald, Dettwiler and Associates (d) 70.51$ $2,187.14 $2,938.72 3.4x 16.5x 20.3x 23.1x 13.0x 11.5x

OHB.DE OHB AG (c ) 16.25€ $367.17 $339.93 0.4x 5.7x 8.4x 19.1x 25.0x 15.3x

GY GenCorp Inc. 12.76$ $757.94 $1,322.54 1.3x 25.5x n/m n/m n/m 16.4x

Mean 1.4x 12.7x 12.8x 18.5x 17.0x 14.6x

Towers

AMT American Tower Corp 81.90$ $32,357.87 $40,847.69 14.2x 22.7x 35.4x n/m 38.6x 32.0x

CCI Crown Castle International Corp 74.88$ $21,951.82 $33,134.23 13.6x 19.8x 38.1x n/m n/m n/m

SBAC SBA Communications 76.95$ $9,767.26 $14,896.50 15.6x 24.7x n/m n/m n/m n/m

Mean 14.5x 22.4x 36.8x n/m n/m n/m

General Telecom

S Sprint Nextel Corporation 7.10$ $21,292.90 $35,794.90 1.0x 7.0x n/m n/m n/m n/m

T AT&T Inc. 39.00$ $217,674.21 $282,983.21 2.2x 8.8x 20.2x 27.0x 15.4x 14.4x

VZ Verizon Communications, Inc. 52.32$ $149,560.38 $250,360.38 2.2x 6.7x 12.1x 25.8x 19.0x 16.6x

Mean 1.8x 7.5x 16.1x 26.4x 17.2x 15.5x

Satellite Broadcast (DBS and DARS)

BSY.L British Sky Broadcasting (f) 8.50£ $21,004.09 $23,188.89 2.2x 9.5x 12.0x 14.5x 14.9x 14.6x

DISH DISH Network Corp 39.86$ $18,053.79 $22,738.87 1.6x 5.2x 6.7x 8.6x 17.8x 16.7x

DTV DirecTV Group Inc. 56.06$ $32,898.25 $48,924.25 1.6x 6.5x 9.6x 11.3x 11.7x 9.7x

SIRI Sirius XM Radio Inc 3.11$ $16,366.19 $18,280.46 5.4x 16.1x 21.0x 37.9x 31.1x 23.9x

Mean 2.7x 9.3x 12.3x 18.1x 18.9x 16.2x

Machine-to Machine Communications

DGII Digi International Inc. 9.11$ $238.96 $137.44 0.7x 6.7x 10.8x 27.1x 26.8x 18.2x

SWIR Sierra Wireless Incorporated 10.33$ $315.99 $252.34 0.6x 21.3x n/m n/m 38.3x 15.2x

WRLS Telular Corp. 9.77$ $148.41 $167.01 1.8x 8.8x 14.6x 22.9x 19.2x 15.5x

NMRX Numerex Corp 10.18$ $158.91 $159.97 2.4x 23.9x n/m 22.2x n/m 29.9x

TCM.L Telit Communications plc (f) 0.85£ $144.73 $157.82 0.8x 9.1x 14.9x 16.3x 8.5x 12.0x

CAMP CalAmp Corp. 9.89$ $294.82 $286.60 1.8x 17.3x 20.5x 33.0x 14.8x 13.0x

Mean 1.4x 14.5x 15.2x 24.3x 21.5x 17.3x

Big Data and Mobile

MSFT Microsoft Corporation 30.60$ $256,244.40 $202,120.40 2.8x 7.0x 7.8x 12.9x 11.1x 9.9x

AAPL Apple Inc. 406.13$ $381,343.89 $244,231.89 1.5x 4.1x 4.4x 9.1x 9.3x 8.3x

YHOO Yahoo! Inc. 24.38$ $27,189.31 $23,050.76 4.6x 15.8x 28.7x 22.6x 17.8x 16.4x

GOOG Google Inc. 807.90$ $266,590.84 $224,039.84 4.5x 13.8x 16.8x 24.0x 17.7x 15.1x

AMZN Amazon.com Inc. 268.90$ $122,080.60 $113,716.60 1.9x n/m n/m n/m n/m n/m

DGI DigitalGlobe Inc. 28.15$ $2,073.44 $2,305.84 5.5x 11.0x 24.0x n/m n/m 35.6x

Mean 3.4x 10.3x 16.4x 17.2x 14.0x 17.0x

OVERALL INDEX

High 15.6x 25.5x 38.1x 37.9x 38.6x 37.5x

Mean (excluding Towers) 2.7x 10.5x 15.5x 19.6x 19.5x 17.1x

Low 0.4x 4.1x 4.4x 8.0x 7.2x 5.6x

(b) EPS estimates from Thompson First Call. Near Earth does not estimate EPS and does not condone or v alidate these estimates. n/m Not Meaningful.

(c ) Conv erted to US $ from Euro at an ex change rate of 1.2995 US $ per Euro. n/a Not Available

(d ) Conv erted to US $ from C$ at an ex change rate of 0.9736 US $ per C$.

(f) Conv erted to US $ from British Pound at an ex change rate of 1.5257 US $ per British Pound.

Member of NEAR EARTH SATELLITE INDEX

Member of NEAR EARTH WIRELESS TELECOM INDEX

Near Earth LLC /23


NEAR EARTH ANALYSIS: M&A TRANSACTIONS

Selected Satellite, Telecom & Aerospace Transactions(US$ in millions unless noted)

Transaction Value/

Date

Announced Acquiror Target

Equity Value

(a)

Transaction

Value (b)

LTM

Sales

LTM

EBITDA

Satellite Operators

09/23/09 GHL Acquisition Corp Iridium Satellite LLC 500.0 517.3 1.6x 5.6x

10/01/09 ViaSat, Inc WildBlue Coimmunications, Inc. 568.0 500.0 2.4x 6.6x

07/28/10 Measat Global NS (Ananda Krishnan) Measat Global Bhd. (40.44% share) 1,651.8R 2,259.7R 7.3x 11.0x

01/13/12 Market Eutelsat Communications (16% share) 6,131.3€ 9,326.6€ 7.9x 10.1x

02/21/12 Abertis Telecom Hispasat (13.23% share) 937.3€ 937.3€ 4.3x 5.4x

06/19/12 Eutelsat Communications GE-23 228.0 228.0 4.6x n/d

06/22/12 China Investment Corp. Eutelsat Communications (7% share) 5,502.9€ 7,908.4€ 6.5x 8.4x

02/08/13 Arabsat Hellas-Sat Consortium Ltd 210.0€ 156.6€ 5.1x 7.0x

Mean 5.0x 7.7x

Ground Equipment

05/09/09 Rockwell Collins Datapath, Inc. 130.0 130.0 0.5x n/d

03/05/10 Integral Systems CVG-Avtec Systems, Inc. 34.7 34.7 1.0x n/d

06/16/10 Teledyne Technologies, Inc. Intelek plc 28.0 35.0 0.9x 6.0x

10/13/10 Gilat Satellite Networks Wavestream Corporation 130.0 130.0 1.9x 10.6x

11/26/10 Veritas Capital CPI International, Inc. 393.1 545.2 1.5x 14.1x

06/03/11 Honeywell International EMS Technologies 506.0 491.0 1.4x 13.8x

09/15/11 Cobham plc Trivec-Avant Corporation 126.0 126.0 n/d 5.6x

05/03/12 Cobham plc Thrane & Thrane A/S 2,465.6kr. 2,536.6kr. 2.3x 8.7x

06/19/12 Sonus Networks, Inc. Network Equipment Technologies Inc. 41.0 42.0 0.8x n/m

10/31/12 Sandmartin International Holdings Limited Pro Brand International, Inc. 33.5 33.5 0.2x 6.3x

Mean 1.2x 9.3x

Satellite Managed Network Services

06/01/09 Globecomm Systems Inc. Telaurus Communications LLC 9.4 9.4 0.8x n/d

11/23/09 Inmarsat plc Segovia, Inc. 110.0 110.0 1.6x n/d

03/08/10 Globecomm Systems Inc. Carrier to Carrier Telecom BV 15.0 15.0 0.8x n/d

05/21/10 Harris Corporation CapRock Communications 525.0 525.0 1.5x 9.7x

11/08/10 Harris Corporation Schlumberger GCS 347.5 347.5 2.0x 8.5x

02/14/11 Echostar Corporation Hughes Network Systems, LLC 1,418.0 2,038.6 1.9x 8.8x

03/31/11 Inmarsat plc Ship Equip International AS 159.5 159.5 2.8x n/d

08/02/11 EADS Astrium Group Vizada 960.0 960.0 1.5x 10.1x

07/24/12 TA Associates SpeedCast Holdings Limited 251.5HK$ 251.5HK$ 1.0x 6.4x

Mean 1.5x 8.7x

Aerospace and Defense Equipment

12/16/08 Sierra Nevada Corporation SpaceDev, Inc. 31.7 26.6 0.7x 23.3x

08/10/09 OHB Technology AG Carlo Gavazzi Space S.p.A. 26.3€ 26.3€ 0.5x 3.9x

12/23/09 OM Group EaglePicher Technologies LLC 171.9 171.9 1.4x n/d

03/05/10 Orbital Sciences Corp. GD Advanced Information Systems 55.0 55.0 1.1x n/d

12/31/10 TeleCommunication Systems Inc. Trident Space and Defense LLC 29.5 29.5 0.7x n/d

03/31/11 EnerSys ABSL Power Solutions Ltd. 32.2 32.2 1.1x n/d

05/16/11 Kratos Defense & Security Solutions Integral Systems 223.7 250.9 1.3x n/m

09/22/11 United Technologies Corp. Goodrich Corp 16,500.0 18,400.0 2.3x 11.1x

06/04/12 Moog Inc. AMPAC-ISP 46.0 46.0 0.9x 12.2x

06/26/12 MacDonald Dettwiler and Associates, Ltd Space Systems/Loral, Inc. 1,069.0 1,069.0 0.9x 11.0x

07/23/12 GenCorp Inc. Pratt & Whitney Rocketdyne 550.0 550.0 0.7x 3.7x

01/02/13 Moog Inc. Broad Reach Engineering Company 43.0 43.0 1.6x n/d

Mean 1.1x 10.9x

Aerospace and Defense ISR and Analysis

06/30/10 The Boeing Company Argon ST, Inc 807.1 765.4 2.5x 31.4x

10/13/10 Veritas Capital Lockheed Martin EIG 815.0 815.0 1.3x n/d

12/08/10 GeoEye, Inc. SPADAC Inc. 46.0 46.0 1.7x n/d

12/20/10 Raytheon Company Applied Signal Technology, Inc. 539.0 505.5 2.2x 17.3x

09/02/11 Iunctus Geomatics Corp. RapidEye 13.0€ 13.0€ 0.7x n/d

10/19/11 Parsons Corporation Sparta, Inc. 350.0 350.0 1.1x n/d

07/23/12 DigitalGlobe Inc. GeoEye, Inc. 832.0 1,204.5 3.3x 6.5x

Mean 1.8x 24.4x

Video Distribution

03/12/09 Harmonic Inc. Scopus Video Networks 78.3 47.6 0.8x n/m

10/01/09 Cisco Systems Inc. TANDBERG ASA 3,322.0 3,622.0 4.0x 18.7x

05/06/10 Harmonic Inc. Omneon, Inc. 274.0 274.0 2.6x n/d

11/01/10 Global Crossing Genesis Networks 27.0 27.0 1.0x n/d

01/05/11 Francisco Partners Grass Valley Broadcast 100.0 100.0 0.3x n/m

12/06/12 The Gores Group Harris Broadcast 225.0 225.0 0.4x n/d

12/19/12 ARRIS Motorola Home 2,350.0 2,350.0 0.7x n/d

Mean 1.4x 18.7x

Machine-to-Machine Communications

11/21/08 EMS Technologies Inc. Satamatics Global Ltd. 30.7£ 30.7£ 3.0x 6.9x

12/02/08 Sierra Wireless Inc. Wavecom SA 306.0 271.0 2.3x n/m

07/01/09 Inmarsat plc SkyWave Mobile (19%) 113.2 113.2 2.8x 7.5x

01/22/10 Francisco Partners Cybit 22.9£ 22.9£ 1.0x 3.9x

06/29/10 Gemalto NV Cinterion Wireless Modules GmbH 163.0€ 163.0€ 1.1x 8.2x

11/08/10 Novatel Wireless, Inc. Enfora Inc. 64.5 64.5 1.1x n/d

01/31/11 Telit Communications Motorola m2m 26.0 26.0 0.5x 2.5x

02/24/11 ORBCOMM StarTrak 18.2 18.2 1.2x n/m

12/05/11 Telular SkyBitz 42.0 42.0 1.2x 8.4x

02/15/12 Itron, Inc. SmartSynch, Inc. 100.0 100.0 2.0x n/d

05/21/12 Silicon Laboratories Inc Ember Corporation 72.0 72.0 3.3x n/d

06/01/12 Verizon Communications HUGHES Telematics, Inc. 561.9 612.0 7.9x n/m

06/18/12 Sierra Wireless Inc. Sagemcom M2M 44.9€ 44.9€ 1.1x n/d

12/20/12 CalAmp Corp. Wireless Matrix Corporation 48.0 53.0 1.6x n/m

Mean 2.1x 6.2x

(a) When Equity Value w as not disclosed, Transaction Value w as used

(b) Calculated as Value of Equity plus interest bearing liabilities and preferred stock, less cash & equivalents n/d Not Disclosed

n/m Not Meaningful

Near Earth LLC /23


ABOUT NEAR EARTH LLC

Near Earth is a specialized Investment Bank which brings the highest quality senior level attention to companies in the greater commercial satellite/space, telecom, aerospace and technology industries. Near Earth provides a full range of capital raising, advisory and consulting services to companies and their Boards. We also provide financial advisory services, valuation, structuring, and due diligence support to private equity, hedge and distressed debt funds. Please contact us if you would like our assistance with a contemplated satellite, telecom or aerospace investment or portfolio divestment.

For more information about our current assignments or about Near Earth LLC, please visit our website at www.nearearthllc.com or contact us at our location below:

Headquarters

243 Tresser Boulevard, 17th Floor Stamford, CT 06901

Telephone (203) 355-3627

Near Earth LLC /23


IMPORTANT DISCLOSURES AND INFORMATION ABOUT THE USE OF THIS DOCUMENT: Near Earth, LLC ("Near Earth") has published this report solely for informational purposes. The report is aimed at institutional investors and investment professionals, and satellite, media and telecom industry professionals. This report is not to be construed as a recommendation or solicitation to buy or sell securities. The report was written without regard for the investment objectives, financial situation, or particular needs of any specific recipient, and it should not be regarded by recipients as a substitute for the exercise of their own judgment. The content contained herein is based on information obtained from sources believed to be reliable, but is not guaranteed as being accurate, nor is it a complete statement or summary of any of the markets or developments mentioned. The authors of this report are employees of Near Earth, LLC, which is a member of FINRA. The opinions expressed in this report accurately reflect the personal views of the authors but do not necessarily reflect the opinions of Near Earth itself or its other officers, directors, or employees. The portions of this report produced by non-Near Earth employees are provided simply as an accommodation to readers. Near Earth is under no obligation to confirm the accuracy of statements written by others and reproduced within this report. Near Earth and/or its directors, officers and employees may have, or have had, interests in the securities or other investment opportunities related to the companies or industries discussed herein. Employees and/or directors of Near Earth may serve or have served as officers or directors of companies mentioned in the report. Near Earth does, and seeks to do, business with companies mentioned in this report. As a result, Near Earth may have conflicts of interest that could affect the objectivity of this report. This report is subject to change without notice and Near Earth assumes no responsibility to update or keep current the information contained herein. Near Earth accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner, via the Internet or otherwise, without the specific written permission of Near Earth. Near Earth accepts no liability whatsoever for the actions of third parties in this respect.

from the ground up - april 2013

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