EOS Communication Systems targets growth with new business acquisition

Space Connect can today confirm the acquisition of Brisbane-based microwave satellite communications business EM Solutions to form part of EOS Communication Systems.

EOS has recently announced the creation EOS Communication Systems and that it had achieved a number of advances which together enable next-generation optical communication to and from space at bandwidths up to 20 times higher than microwave technology, and at lower cost.

However, the company has long recognised that over $400 billion is currently invested in microwave communication infrastructure in space, and that this sunk cost and the all-weather capabilities of microwave technology will ensure a long-term role for microwave technology in space communications.   

EMS is a world leader in on-the-move satellite communications. It is a major provider of satellite communication systems for the Australian Defence Force, including Royal Australian Navy ships, and has been widely recognised for its advanced technology, winning awards such as the Essington Lewis Trophy (2018) Department of Defence SME Team of the Year for innovation in defence communication.

EMS’ on-the-move radio and satellite products deliver high speed telecommunications anywhere in the world to its customers. It is a trusted provider of secure and resilient communications for key customers such as defence forces and government agencies internationally.

CEO of EM Solutions Dr Rowan Gilmore welcomed the announcement, saying, "EM Solutions is delighted to become a part of the EOS Group. For our customers, the new group offers a deeper capital base, access to further leading edge research, and much greater support capability offshore." 

EOS has acquired 100 per cent of all issued shares in EMS in exchange for 4,271,357 EOS ordinary shares and a cash payment of $1.49 million. These new 4,271,357 ordinary shares will generally be subject to a six-month escrow period. At the average EOS share price for September, this values EMS at approximately $26 million.

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"For the Australian Defence Force, the new entity provides an even stronger sovereign capability in future communications. We look forward to continuing to develop and improve our existing suite of on-the-move satellite communications products and flat panel antennas while now investing in future space communications technology as part of EOS," Dr Gilmore added. 

Although fundamentally a strategic acquisition, this transaction will immediately be earnings per share accretive to EOS because on its existing contracts EMS will contribute a higher proportion of EOS EBIT in FY2020 than the proportion of EOS’ fully diluted shares issued as consideration.

EMS is presently achieving EBIT growth around 10 per cent and EOS expects to accelerate this growth. EOS’ own forecast of growth exceeding 45 per cent for the next two years will not be reduced by this acquisition.

EMS will immediately form an Australian base for EOS’ new Communication Systems business, adding to EOS’ existing Defence Systems and Space Systems business segments.

The EMS senior management team of Dr Gilmore, Dr John Ness (CTO) and Peter Bradley (chief engineer) will maintain their roles in EMS as EOS executives. EMS staff, now numbering over 50, will be expanded.

EMS has sector-leading products. EOS plans to expand the market reach of these products through its own customer network, and add space-based and optical communication capabilities to EMS’ ground-based technology.

This will allow EOS Communication Systems to provide a broad range of communications solutions to existing EMS and EOS customers, as well as the broader market.

Reinforcing Dr Gilmore's comments, Dr Ben Greene, Group CEO of EOS welcomed the acquisition, stating, "EOS is extremely pleased to join forces with EMS to address next-generation space communication needs. The culture of excellence and innovation which EMS has developed and maintained aligns well with EOS’ own values." 

EOS will now offer customers globally a range of proven communication solutions that are both leading edge and future-proofed. These products will offer EOS customers a secure transition to the future of ultra-broadband space communications.

"This acquisition immediately establishes EOS as a credible provider for a portion of the $120 billion of space communication infrastructure and equipment to be replaced over the next 20 years," Dr Greene added. 

"EOS intends to expand this portion to embrace most of the identified market by 2023. EOS will leverage its agile business processes and its advanced technology, now including EMS innovation, to provide strong market differentiation and competitive advantages in this $120 billion market."

EOS estimates that of $400 billion of space communications infrastructure that must be renewed in the next 20 years, at least $120 billion will require a combination of performance features across microwave and optical domains, which EOS is now equipped to provide.

"In recent years, EOS has developed responsive production processes which allow rapid ramping up and down of production for aerospace products. Access to these processes and EOS’ global supply chain will support efficient expansion of the communications business," Dr Greene said. 

The leading edge of this $120 billion in procurements is imminent. EOS will compete in this market.

In addition to its role in anchoring the new EOS Communication Systems segment in Australia, EMS will immediately provide a platform for expansion of EOS’ other business segments.

EOS Space and Defence segments are currently limited by access to suitable researchers, scientists, engineers and technicians and adding a Brisbane site of operations to these rapidly-growing businesses will increase the catchment pool for their recruitment by 300 per cent.