Insights For A New Market


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Insights For A New Market

  1. 1. A Leading Provider of Investment Banking and Advisory Services to Companies and Investors in the Satellite, Media, Telecom Sectors In Treacherous Financial Markets & An Unstable Economy Here is how Near Earth can help… December 2008 380 Lexington Ave. 17th Floor, New York, NY 10168, Tel: (212) 551-7960
  2. 2. The world has changed… “I skate to where the puck is going to be, not where it has been.” - Wayne Gretzky Where is the puck going? How will it get there? How will you outmaneuver your competitor? And when you get to the puck, what next? 2
  3. 3. …the value of good advice has not Not all banks are in transition • Wall Street institutions departed from traditional investment banking long ago – Institutions focused on proprietary trading, hedge fund management, and principal activities • For “boutique” firms such as Near Earth, business profile is vastly different – Advisory focus (without conflicts) – Highly targeted industry coverage – Work with entrepreneurs, small- and mid-sized companies, and other institutions • We are not only better equipped but also take pride in offering well-balanced advisory services to better serve our clients’ needs – And at more reasonable rates 3
  4. 4. What should you be doing? Review (and continuously update) your strategic and financial alternatives… Are you a buyer or a seller? Step 1: Understand the intrinsic value of your Company relative to the market – Know your competitive landscape and likely changes – Know your customer base and likely behavior in a down-market Step 2: Keep abreast of financial markets – Know your financing options in any scenario – Know your competitors and customers’ financing options Step 3: Keep abreast of the M&A environment – Develop a strategy to use M&A to grow, restructure, or exit – Know who is selling and who is buying, and at what terms Step 4: Be prepared to act quickly We can help! 4
  5. 5. State of the Financial Markets & Economy
  6. 6. Financial Markets Turmoil Liquidity freeze has extended beyond sub-prime mortgages and structured credit Broad economic repercussions felt worldwide & with lasting consequences • Liquidity crunch is effecting all businesses in all industries and all geographies – In the past year, major global equity market indices have lost 30-70% of value – Only 6 VC-backed IPOs in 2008, 5 of these in Q1 – VC and PE firms focusing on existing portfolio holdings, and struggling to raise new funds – Corporate credit markets substantially more expensive, if not frozen – Banks and finance companies in transition – Hedge fund industry diminishing rapidly due to losses and LP redemptions • Limited access to capital expected to ripple into economic fundamentals – Capital expenditures and expansion projects to slow with constrained liquidity – Corporate defaults and restructurings to rise with limited refinancing sources – Economists projecting global economic downturn lasting for 18-36 months 6
  7. 7. Financial Markets Turmoil In the past year, major global equity market indices have lost 30-70% of value U.S. and International Stock Indexes MSCI World Index (as of 12/1/08) (as of 12/1/08) YTD Index Country Current % Change -46% YTD DJIA U.S. 8,149 -37.5% S&P 500 U.S. 816 -43.6% Nasdaq Composite U.S. 1,398 -46.4% S&P/ TSX Comp Canada 9,271 -33.0% IPC All-Share Mexico 20,535 -30.5% Sao Paulo Bovespa Brazil 36,596 -42.7% Shanghai Composite China 1,871 -64.4% Hang Seng Hong Kong 13,888 -50.1% Tokyo Nikkei 300 Japan 170 -43.7% Kospi South Korea 1,076 -43.3% Bombay Sensex India 9,093 -55.2% CAC 40 France 3,263 -41.9% DAX Germany 4,669 -42.1% RTS Index Russia 658 -71.3% FTSE 100 U.K. 4,288 -33.6% Industry Stock Indexes (as of 12/1/08) YTD Source: Bloomberg and MSCI Barra Index Country Current % Change The MSCI World Index is a free-float weighted equity index. It was Dow Jones U.S. Telecom U.S. 107 -36.2% developed with a base value of 100 as of December 31 1969. MXWO Dow Jones U.S. Technology U.S. 330 -44.6% includes developed world markets, and does not include emerging Dow Jones U.S. Internet U.S. 198 -55.9% markets. 7
  8. 8. Financial Markets Turmoil Our sectors of interest have not been immune Near Earth Sectors of Interest (as of 12/1/08) YTD Ticker Company Current % Change Near Earth Indices (Year-to-Date) ISYS Telecom Integral Systems Inc. $21.13 86.2% ETL.PA Eutelsat Communications $20.54 0.9% Satellite Trad'l Media Telecom New Media NASDAQ SESG.PA SES Global S.A. $17.11 -4.9% CMTL Comtech Telecommunications $45.13 -16.1% 120 VZ Verizon Communications, Inc. $30.51 -25.4% T AT&T $26.93 -31.1% ORB Orbital Sciences $16.00 -34.4% 110 CDV COM DEV International $2.26 -36.3% AMT American Tower $25.43 -38.3% VSAT ViaSat Inc. $19.01 -43.9% 100 SATS EchoStar Corp. $15.88 -51.3% GCOM Globecomm Systems Inc. $4.85 -58.1% SBAC SBA Communications $13.55 -59.1% 90 CCI HUGH Crown Castle Hughes Communications, Inc. $12.75 $15.45 -68.2% -70.8% GILT Gilat Satellite Networks $2.22 -78.2% 80 LORL S Loral Space & Comm. Inc. Sprint Nextel Corporation $6.04 $2.15 -82.3% -83.5% Traditional Media CMCSA Comcast Corporation $15.45 -11.8% 70 DTV DirecTV Group Inc. $19.39 -13.9% TWC Time Warner Cable Inc. $19.43 -29.3% BSY British Sky Broadcasting $24.01 -48.0% 60 WPO Washington Post $354.25 -54.5% CXR Cox Radio Inc. $5.06 -57.4% NYT New York Times $6.97 -58.3% 50 MCCC SBGI Mediacom Communications Corp Sinclair Broadcast Group $2.10 $2.73 -60.2% -63.9% DISH Dish Network Corp $10.10 -68.5% 40 ROIA MNI Radio One Inc. The McClatchy Company $0.57 $1.85 -75.7% -83.5% CHTR Charter Communications Inc. $0.16 -86.0% CMLS Cumulus Media Inc. $0.79 -89.9% 30 TVL LIN TV Corp. $1.19 -90.0% EMMS Emmis Communications Corp. $0.30 -91.5% Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- ETM Entercom Communications $0.96 -92.2% SIRI Sirius XM Radio $0.17 -94.4% 08 08 08 08 08 08 08 08 08 08 08 RNWK New Media Real Network Inc. $3.34 -44.0% MSFT Microsoft Corporation $18.61 -46.2% AAPL Apple Inc. $88.93 -54.4% YHOO Yahoo! Inc. $10.74 -54.7% Components of the satellite index components are highlighted to the right GOOG IACI Google Inc. Interactive Corporation $265.99 $13.96 -61.2% -63.0% ERTS Electronic Arts Inc. $17.77 -68.7% 8
  9. 9. Financial Markets Turmoil VC and PE firms focusing on existing portfolio holdings Only 6 VC-backed IPOs in 2008, VC firms struggling to raise new funds, and 5 of these in Q1 amount invested beginning to slow Venture-Backed Fundraising and Investing by Venture Funds ('06-Present) Liquidity Events: IPOs Number of Funds Raised Amount Invested 35 31 90 $9,000 30 85 25 25 80 $8,000 Amount Invested ($,M) # of Funds Raised 20 75 19 20 18 70 $7,000 65 15 12 10 60 $6,000 10 8 55 5 50 $5,000 5 1 45 0 0 40 $4,000 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 Chart: Green VC & Near Earth LLC / Data Source: Thomson Reuters & National Venture Capital Association Source: Thomson Reuters, PwC & National Venture Capital Association Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile 9
  10. 10. Financial Markets Turmoil Corporate credit markets substantially more expensive, if not frozen • Spread between investment grade/high-yield corporate debt and treasuries remains relatively high Investment Grade Corporate Debt High Yield Corporate Debt 9/15: Lehman collapse and Merrill deal with BofA announced (LQD) iShares: iBoxx $IG Corp: ETF tracking U.S. investment grade corporate bond market (HYG) iShares: iBoxx $HY Corp: ETF tracking U.S. high yield corporate bond market (IEF) iShares: Lehman 7-10 Trs: ETF tracking Lehman Brothers 7-10 Year Treasury Index (IEF) iShares: Lehman 7-10 Trs: ETF tracking Lehman Brothers 7-10 Year Treasury Index 10
  11. 11. Strategic M&A Trends Strategic acquirers with liquidity are looking for reasonably priced targets • A number of strategic buyers have substantial cash and equivalents balances for potential acquisitions (e.g. Apple, Google, Intel, Microsoft) (2003-Present) Source: MergerMarket • Deals are cheaper with financial-sponsor LBOs no longer propping up prices • Add revenue streams and profit (especially in slowing economy) more cheaply/quickly than organic growth strategy • Industry consolidation and competitor elimination opportunity • Likely to get more aggressive as evidence of market bottom solidifies • Public companies largely still not buying back own stock, even after steep devaluation (may indicate lingering doubts about rebound) 11
  12. 12. Strategic M&A Trends According to a McKinsey study of 200 global companies in an economic downturn, an effective acquisition strategy creates significant value for shareholders • Relative value of cash vs. stock may favor using stock for deals – Preserving cash balances in uncertain economy is top priority for many • According to Moody's Investors Service, a record $1.6 trillion in cash sits on the books of non-financial U.S. companies, $600 billion more than five years ago – Some acquirers will prefer to use stock as M&A currency for strategic deals – Sellers with structural flexibility and revenue/profit platforms will get deals done – Many deals will involve stock, cash, seller paper and some form of earn-out 12
  13. 13. Long-term Industry Trends & Opportunities
  14. 14. Distribution: Convergence Rapid evolution of consumer tastes and technological capabilities are continuously changing the landscape and business requirements • Network convergence – Triple play set the stage for broadband-mobile integration – Convergence of voice, video and data on mobile and IP platforms • EchoStar acquires Sling Media, DVB-SH trial with Alcatel-Lucent, creates – Fixed mobile convergence (e.g. Wi-Fi enabled smartphones, femtocell) • AT&T acquires Wi-Fi provider, Wayport • Mobile operators motivated to use “nomadic” methods to offload traffic to fixed backhaul networks (e.g. Free Wi-Fi at Starbucks) • Device convergence – Fighting for a piece of the “digital home” • Functionality of customer premise equipment (e.g. DVR, AppleTV, home networking, etc.) • Media players and user interface (e.g. iTunes/iPod, Mac mini, Amazon Kindle, etc.) • Role of gaming platforms as video players, other roles (e.g. Xbox, Nintendo Wii, etc.) – Mobile networking, applications and interoperability • Time-shifted communication (e.g. mobile IM vs. SMS) • Open standards (e.g. Google Android) • Expanded handset applications – mobile TV, transaction payments – Digital signage (dynamic, increasingly interactive) replacing traditional billboards 14
  15. 15. Distribution: Infrastructure Infrastructure capabilities and capacity need to keep pace • Continued improvements in bandwidth and transport efficiency – Need both high bandwidth and high quality broadband networks • Multi-service broadband networks need end-to-end quality of service • Support applications (e.g. streaming video, VoIP, e-commerce, Enterprise Resource Planning (ERP)) • New modulation and compression standards (e.g. DVB-S-2, MPEG-4, VP8, etc.) • Emergence of switched digital video, home networking standards – Varying needs for delay, bandwidth, packet loss, and availability • Broadcast (TV and Radio) vs. Unicast (IP) distribution • Interactive, onDemand and HD media are bandwidth hogs (e.g. HDTV over IPTV) • ERP solutions benefit from wide area network (WAN) optimization • Content delivery networks for streaming video • Continued explosion of video content (both SD and HD) worldwide – Broadcast video still far more efficiently distributed via satellite – Fixed satellite service companies enjoying strong cash flows and good multi-year backlogs – In the developed world, DBS/Direct-to-home (DTH) added massive HD offerings to compete • In emerging markets, DTH expanding rapidly 15
  16. 16. Distribution: Mobility Seamless mobile connectivity and global roaming more and more evident. Wireless broadband coverage continue to get filled by increasingly capable networks Marine and aerial markets Mobile satellite services (MSS) Non-rural terrestrial markets 3G/3.5G, WiFi, WiMax Rural terrestrial and emerging markets Cellular backhaul via satellite • Use of licensed and unlicensed spectrum is broadening – Recent spectrum auctions surpassed expectations – FCC approved use of TV broadcast spectrum “white spaces” • Opens up possibility of vast new and innovative wireless products and services – Spectral efficiency and interference mitigation are key 16
  17. 17. Distribution: Computing Processing and hosting quality evolving with customer trends and infrastructure solutions • Cloud computing offers Cloud Computing Landscape various technology capabilities ranging from infrastructure to software “as a service” • Web developers, software vendors, large enterprises, small businesses, and many consumers are increasingly using these services to meet their computing needs …and many more …as a Service Source: Wikipedia & Near Earth LLC 17
  18. 18. Content: Convergence Nature of media (both traditional and new) forced to evolve, assimilate and combine • Platform convergence – Arrangements between media, entertainment, Internet, cable and wireless companies to extend the reach of content across a number of platforms • CBS acquires SignStorey, CNET and • Comcast acquires DailyCandy – Traditional content on digital platforms • Christian Science Monitor will be online only • Google offering digital books online • Amazon’s Kindle Device • User-generated content, once seen as displacing professional content, is now losing viewership and revenue share to professional content – YouTube partners with CBS, MGM and Lionsgate – Internet publishing groups in the blogosphere (e.g. Gawker Media) – Social networking in the enterprise (e.g. LinkedIn) 18
  19. 19. Content: Proliferation Differentiation increasingly challenging in an environment of low barriers and very large numbers • Quantity and fragmentation of content Sample: Digital music landscape Audio Services Distribution Method • Unlimited choices for the consumer creates confusion in the marketplace Digital download / – “Long-tail” and niche content in all aspects of On Demand services media (e.g. digital music libraries, news Cellular/ sources, books, video, artists, publishers, etc.) WiFi/WiMAX Aggregation services – Majority of revenues still derived from “head” or popular content – Professional content more valuable than user- Subscription services Fixed broadband generated Internet radio • Low barriers initially create level playing field Satellite • Progressively a small set of companies dominates – Satellite radio (DARS, DMB) branded aggregators address customer confusion – Google (search) Traditional radio Terrestrial – Amazon (online retail) broadcast – iTunes (digital music) HD radio – Hulu (branded video) Source: Near Earth LLC 19
  20. 20. Content: Interactivity Interactivity features deepen and broaden the relationship with the audience • Interactivity and interaction – User feedback and comments – Bookmarking and sharing (e.g., digg, flickr, etc.) – Micro-communication with “followers” (e.g. Twitter, Tumblr, etc.) – Integration with social sites • Customization and filtering – Screening and aggregation (e.g. RSS, Friendfeed, etc.) – Personalization (e.g. Pandora, Slacker, etc.) • Targeting – Location based services (e.g. 3-D and street view maps, GPS, local services, etc.) • Mash-up with geographic, spatial and user-generated information 20
  21. 21. Content: Monetization New media business models required to mature and demonstrate profit potential Subscription models Advertising models (need: fee justification) (need: measurement, ROI, stickiness, relevance) • “Freemium” • Online ad networks vs. direct sales – Offer free content to all at low marginal – Pricing dynamics related to supply and cost demand and commoditization of inventory – Convert small percentage to premium – Ability to aggregate remnant inventory into – Small percent of large number is large relevant platforms for advertisers – Greater importance of scale – Embedded advertising without ruining consumer experience (video, audio, widgets, roll-over, etc.) • Enterprise • Data mining and utilization – Initial consumer acceptance has opened up enterprise opportunities – Sale of anonymous user data (e.g. spending behavior) to marketers and researchers – Enterprise customer easier to monetize • Out of home – Greater importance of sophistication and privacy in enterprise – Ability for digital signage to show ROI on large capital expenditures 21
  22. 22. How we can help
  23. 23. Near Earth Advantage We pride ourselves on our industry expertise and providing our clients with quality advice • Unmatched industry expertise • Deep industry and investor relationships • Blend of banking and research backgrounds • Dedication and client focus of a boutique • Added depth of Near Earth Advisory Board We help our clients succeed! 23
  24. 24. Customized Advisory Services We work flexibly with companies and investors to address individual needs • Business plans and industry studies – New ventures or strategies – Project assessment – Roll-up initiatives – Financing support • Strategic and financial advisory services – Competitive overview – SWOT analysis – Industry direction – Corporate finance options and strategies • Leveraging the unique profile of Near Earth’s professional team, which includes a mix of banking, equity research and specific industry experience • Near Earth has successfully completed advisory assignments with numerous institutional investors and large corporations 24
  25. 25. Standard Advisory Packages In addition to customized solutions, we also offer project specific packages listed below M&A Review Analyze buy-side and sell-side opportunities and make recommendations Capital Structure Review Analyze capitalization structure Any one study: $20,000 - $40,000 and make recommendations Any two studies: $30,000 - $60,000 Any three studies: $40,000 - $80,000 Valuation Review Analyze company/asset and market economics to create financial valuation 25
  26. 26. Investment Banking Services We work with our clients to execute strategic and financial initiatives of almost any size • Full range of mergers & acquisition, corporate finance, and private placement services – Emerging as well as established companies in our sectors of specialization • Transactional experience of professional team includes: – Structuring – Underwriting – Placement – Advisory – Agency and principal roles – All stages of business cycle • More than 50 years and $30 billion in aggregate transactional expertise 26
  27. 27. About Us Hoyt John Dan Kuni Ian Davidson Stone Ramsden Takahashi Fichtenbaum Finance • 21 years • 7 years • 18 years • 3 years • 1 year Experience • DLJ, CSFB • Ladenburg Thalmann, • BMO Capital Markets, • Divine Capital Markets • Raised over $15 billion National Securities Bentley Associates • Over $10 billion in transactions Industry / • Satellite/ Media/ • Wireless/ Cable/ • New Media/ Digital • Satellite/ New Media / • Satellite/ Aerospace/ Product Telecom Satellite/ Tech Content/ Traditional Telecom Telecom • Co-founder/MD of • Research analysis Media/ Towers • Corporate Finance, • Research and analysis Experience satellite banking • PIPEs banking • Debt & Equity private M&A and Valuations • Quantitative Analytics • Corporate Finance and • 11 years satellite engineer placements • 3 years: Design M&A at Boeing, Hughes, • M&A advisory Engineer, Space • Sr. Research Engineer, General Dynamics • Public issuances Systems/Loral Lockheed • Sr. Credit underwriting • Business Ops, Intelsat • 2 years: Telecom / IT Systems Integrator Education • MBA, MIT Sloan School • MBA, UCLA Anderson • MBA, Fordham • MBA, Georgetown • MM, University of • BS, MIT • MS, University of • BA, Cornell • BS, Santa Clara British Columbia Maryland • BEng, McGill • BS, University of University Rochester 27
  28. 28. World Class Advisory Board Satellite Media Telecom • Terry Hart, PhD (Fixed Satellite • Ted Bolton, PhD (Radio and New • Christopher Baugh (Wireless Telecom Services (FSS), former President of Media, President, Bolton Research) and Satellite, President, NSR) Loral SkyNet) • Gary Hatch (Cable, IPTV, and DBS, • Susan J. Irwin (Telecom Market • Bruce Haymes (FSS and Digital President, ATCi Corporation) Research, President, Irwin Media, Senior Vice President and Communications) Product Leader, Digital Media, The • Stuart Jacob (New and Traditional Nielsen Company; former VP Media, Entertainment, President, • Bruce Wendt (Communications strategic development, PanAmSat) Programming and Creative Services, Towers, SteelTree Partners, formerly CBS Outernet) led M&A for AAT Communications • Ramin Khadem (Mobile Satellite Corp.) Services (MSS), former CFO, • Robert Maccini (New Media and Inmarsat) Radio, COO, Ando Media LLC and Net Radio Sales, LLC) • Jeremy L. Rose (Satellite Networking, Principal, Comsys) • Jimmy Schaeffler (New Media, DBS and Satellite Radio, CEO, The • Peggy Slye (Satellite, Director Space Carmel Group) & Telecom, Futron Corp.) 28
  29. 29. Additional Information Please visit our website for additional credentials and track record information, and access to our industry and capital markets publications Hoyt Davidson John Stone Dan Ramsden (212) 551-7960 (646) 290-7796 (646) 843-9799 Kuni Takahashi Ian Fichtenbaum (646) 843-9806 (646) 290-7794 29
  30. 30. IMPORTANT DISCLOSURES AND INFORMATION ABOUT THE USE OF THIS DOCUMENT: Near Earth, LLC (quot;Near Earthquot;) 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 New 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. 30
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