IDirect Technologies Inc., a Herndon firm that sells network equipment to satellite companies, agreed to be acquired yesterday by Singapore Technologies Engineering Ltd. for $165 million in cash.
The acquisition is the second big deal this week in the consolidating satellite industry. On Monday, satellite giant Intelsat Ltd., which has most of its operations in the District, said it was acquiring PanAmSat Holding Corp. for $3.2 billion.
Under the terms of the IDirect deal, the 11-year old Herndon firm will be acquired by Singapore Technology's U.S. holding company. IDirect will continue to operate under its own name and existing management team. No layoffs are expected among its 150 employees.
IDirect was founded in 1994 by a group of engineers who set out to create a company that would compete with telecom giants such as WorldCom Inc. and BT Group PLC's British Telecom by offering digital network services via satellite.
The firm raised $40 million in venture funding, but its business model proved too costly and it nearly ran out of cash. John M. Kealey signed on as chief executive in late 2001 and shifted the company's focus to equipment sales.
Today IDirect sells modems that connect with satellites to allow clients to tap into broadband networks from anywhere in the world. About 30 percent of its revenue comes from the Department of Defense, which has used the firm's technology to provide Internet connections to more than 1,000 units stationed in Iraq.
Most of the company's business comes from former competitors such as France Telecom SA and MCI Inc., which use IDirect's servers to connect clients in remote locations where high-speed fiber-optic networks are unavailable.
Last year the privately held company brought in more than $50 million in revenue, according to Kealey, and is on track to post about $80 million in revenue this year.
Singapore Technologies is divided into four units, including aerospace and shipbuilding divisions. IDirect will be acquired by the firm's electronics and networking unit.
Kealey said IDirect will use the cash to expand its line of satellite equipment.
The satellite industry is ripe for consolidation, according to Thomas W. Eagan, an analyst with Oppenheimer & Co. of New York, because demand for satellite communication services has not increased as quickly as some providers had hoped.
"To a degree, there is some oversupply of capacity and I think some of the players might be thinking that there is some overhead saving they can accrue," Eagan said. But the demand is starting to increase more rapidly, as consumers start to adopt high definition television and other satellite-based technologies, he said.
The Intelsat deal to buy PanAmSat would create the world's largest satellite company, a firm with 53 satellites and more than $1.9 billion in annual revenue. Intelsat's is based in Bermuda, but most of its 800 employees are in Washington.
Joseph R. Wright Jr., chief executive of PanAmSat, said in a conference call Monday that he thinks consolidation is good for the industry. "I also thought it was inevitable -- it was going to occur as our industry evolved," Wright said.
Eagan said he expects consolidations to continue, especially among smaller satellite firms. Kealey said IDirect's acquisition is not directly related to that trend but reflects the industry's maturation.
"I think if there is interest and capital flowing in the industry, that's a sign there are good things to come in the future," Kealey said.
PanAmSat stock rose 6 cents to close at $23.86 a share yesterday.