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ORBIMAGE Acquires Space Imaging: The Past and the Future

Wednesday, September 21st 2005
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Summary:

Last Friday ORBIMAGE, which had reorganized into a holding company in June, announced the acquisition of Space Imaging (SI) for $58 million.SI had been on the block since it failed to win either of the latest National Geospatial-Intelligence Agency (NGA) contacts in the past year.While rumors surfaced about potential buyers, in the end ORBIMAGE, the #3 commercial satellite imaging company in the U.S., itself just out of bankruptcy in 2003, will take on SI’s assets and debts.

ORBIMAGE logo
Space Imaging Logo

The Facts
Last Friday ORBIMAGE, which had reorganized into a holding company in June, announced the acquisition of Space Imaging (SI) for $58 million. (The formation of the holding company was "intended to give the company greater flexibility with respect to future operational and financing activities" according to a press release.) SI had been on the block since it failed to win either of the latest National Geospatial-Intelligence Agency (NGA) contacts in the past year.While rumors surfaced about potential buyers, in the end ORBIMAGE, the #3 commercial satellite imaging company in the U.S., itself just out of bankruptcy in 2003, will take on SI's assets and debts.

Some of those assets include the IKONOS satellite but other, more important ones for ORBIMAGE, include SI's network of ground stations and resellers.The substantial partner base is a result of SI being the first in orbit with a 1 meter satellite.In 1999, the company successfully downloaded its first imagery.ORBIMAGE expects to retain an SI presence in Thornton, Colorado, SI headquarters, and hopes to keep many of the personnel, many of whom have military clearance.

An acquisition has been coming for some time.Lockheed Martin and Raytheon revealed in 2003 that they would put no further funding into the company after writing off millions.SI sold off its commercial and civilian value-added solutions business unit to Sanborn earlier this year.

ORBIMAGE is publicly traded, employs about 150, mostly based in Dulles, Virginia.It had revenue of $31 million in 2004.Lockheed Martin and Raytheon own 77% of SI, which employs about 175, mostly in Thornton. Its revenue totaled $135 million last year.SI CEO Robert Dalal will return to Lockheed Martin once the acquisition is complete.The deal is expected to close at the end of the year with little trouble.One reason, according to the Denver Post, is that the NGA has indicated it only wants to deal with two satellite vendors.

The Future
The new company will own 50-60% of the market.The remainder will go to DigitalGlobe, which retains the #2 spot in the industry.Still, DigitalGlobe owns the highest resolution satellite (.62 meters) and was the first to win NGA's NextView contract for an even higher resolution bird (.50 meters) in September 2003.DigitalGlobe, like ORBIMAGE, has spent some time trying to broaden its user base into the commercial markets.Google, via Keyhole, has worked with DigitalGlobe since 1992. Today, DigitalGlobe imagery appears in Google Maps and Google Earth. DigitalGlobe was first to offer user friendly licensing for governments.ORBIMAGE tied into fishing industry needs with OrbView-2 and recently signed on with Microsoft to provide imagery to Virtual Earth.SI, to my knowledge, does not have a similar non-defense/military list of accomplishments.

For many in the industry, SI was already a lame duck company, so it's unlikely its acquisition will cause any immediate waves.NGA will find its life simpler since it will need to read and explore bids from only two players.But, those who depend on three reasonably large companies to advertise in magazines and buy booths at trade shows will see the revenue numbers drop.I found it most interesting that in the press release describing the acquisition, both SI and ORBIMAGE noted their membership in the United States Geospatial Intelligence Foundation. That organization, for example, will be down one member.

Another variable always looming in the commercial use of imagery is the potential effect of Google and Microsoft.Will the educative effect of Google Earth/Maps and Virtual Earth regarding the applications and commercial benefits of satellite imagery prompt more licenses to be sold? Or will users simply take advantage of Google's and Microsoft's APIs (which in the case of Microsoft include free use for commercial apps)? No matter what the impact of these players, the bottom line is that the world now has but two choices for 1 meter commercial imagery, and ORBIMAGE and DigitalGlobe will no doubt try to outwit, "out-productize" and out-market one another in the coming months.


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