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WASHINGTON — Comtech is acquiring Gilat Satellite Networks for $532.5 million, a move the company says will position it to capitalize on large anticipated demand for new ground segment infrastructure.
Melville, New York-based Comtech Telecommunications Corp announced the Gilat acquisition Jan. 29, the same day it said it would also buy antenna builder CGC Technology Limited in the United Kingdom for approximately $23.7 million.
In a Jan. 29 earnings call, Comtech executives said advances in satellite communications technologies, coupled with growing demand for inflight connectivity, 5G backhaul over satellite, and secure military communications are driving demand for satellite ground infrastructure.
“There is an accelerating growth in the supply of low cost bandwidth,” said Michael Porcelain, Comtech’s president and chief operating officer. “Like any technology, the lower the cost, generally the more people can afford to use it, and in this case we believe they will.”
Comtech is buying Gilat for $10.25 a share, paid 70% in cash and 30% in Comtech stock. Comtech expects the combined company will generate close to $1 billion in annual sales.
Fred Kornberg, chief executive of Comtech, said Israel-based Gilat is not a competitor to Comtech because the two companies have different product strengths and geographic exposures.
“We’re essentially in the same markets supplying communications users, but supplying different products,” he said.
Comtech regularly sells satellite ground equipment to the U.S. government, while Gilat is far more successful in international markets, he said. Together the companies can cross-sell into each other’s respective markets, he said.
Comtech said it will list its shares on the Nasdaq and Tel Aviv Stock Exchanges once the merger closes, which Porcelain said is expected by July but could take until December.
Kornberg said Gilat will bring expertise in satellite user terminals that use a communications method called Time Division Multiple Access, or TDMA, that is useful for networks with multiple terminals that don’t need to transfer data across long distances.
“We’ve had no expertise in there,” he said. “That brings us this brand-new technology, as well as another product line.”
Kornberg said Comtech’s background is with Single Channel Per Carrier, or SCPC, a satellite communications method that uses dedicated point-to-point links for transferring video and data.
Dov Baharav, Gilat’s board chairman, said Gilat has modems in more than 500 networks globally. He said Gilat will seek to sell modems, amplifiers and antennas to the U.S. military as a Comtech subsidiary.
Comtech executives said they expect to keep all Comtech’s and Gilat’s locations open and fully staffed after the acquisition closes. The companies expect to shed $2 million in costs associated with public listing by trading as a single company.
“Both companies’ talented global workforces are expected to remain in place,” Porcelain said.
In a news release, Comtech said it is drawing on a new $800 million loan from a network of seven banks to finance the Gilat purchase. Comtech expects the loan to have a cash interest rate of 4-5% annually, though the exact terms are not finalized.
Comtech is also buying very small aperture terminal provider UHP Network of Canada for $40 million in a deal announced in November.
Kornberg said Gilat and UHP Networks will fill a TDMA void in Comtech’s product line. Gilat will also expand Comtech’s presence in the inflight entertainment and connectivity market.
Kornberg said Comtech sells amplifiers to aviation connectivity customers, while Gilat sells modems. Gilat has also developed a new electronically steered antenna for use on aircraft that Comtech is confident “will have a bright future,” he said.
Kornberg said buying CGC Technology was “complementary” to Gilat, since the two companies sell different types of antennas. CGC Technology’s antennas are mechanically steered and are designed for use as ground stations for satellite constellations in medium Earth orbit and below.
Comtech’s purchases are the latest in a recent wave of broader ground segment acquisitions. Singapore-based ST Engineering completed its $281 million purchase of Belgian ground segment supplier Newtec in October, and Canadian IT services company CGI Group completed its $103.2 million acquisition of Dublin-based Scisys in December.