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1/8 Yesterday, Maxar announced that they were acquiring Vricon, which I am surprised by. A bit of history and some analysis:
In 2015, two years before MDA acquired DigitalGlobe and four years before they changed their name to Maxar, DG spun out a joint venture with Saab: Vricon.
In 2015, two years before MDA acquired DigitalGlobe and four years before they changed their name to Maxar, DG spun out a joint venture with Saab: Vricon.
2/8 I found the idea behind the joint venture very clever. DG provided unfettered access to their data (insanely valuable, hundreds of millions annually at least) and Saab (they don't just make cars) brought their 3D algorithms. Just add people, cash, and you've got a biznass.
3/8 The announcement yesterday went into surprising detail about the deal. Maxar purchased Vricon for $115M. Technically, $140M, but apparently Vricon had $25M in cash on hand, which is a ton of cash to sit on. Apparently $115M was 10x EBIDTA (kinda like profit before taxes).
4/8 So, we can surmise Vricon was generating ~$11.5M in EBIDTA just five years after spinning out of DG. That's a lot of money to be minting for a startup (even one with artificially low cost of goods because of its ownership structure). That'd be decent *revenue* five years in!
5/8 What's weird to me is that Maxar bought their own spinout. Assuming they own a huge equity stake in it already, and it's being run well, the ideal thing would be to leave it alone and let it run free and get huge! Why would you buy your own spinout back?
6/8 I think the answer is debt. Maxar started the year over $3B in debt. They sold off MDA for $765M in January as well as $291M in real estate holdings. Now they're acquiring Vricon because it generates cash that can be used to help pay down debt.
7/8 Maxar's imagery is prohibitively expensive, but if you can get it for free through a clever structure like a JV, you can build a very profitable product-based company that is almost impossible to compete with because of your access. Costs Maxar very little compared to upside.
8/8 Anyway--congrats to the Vricon team on the great outcome, and to Maxar for the successful bet. I hope Maxar considers doing more such deals in the future.
