A small Westlake Village company that provides online connections to airline passengers fetched an eye-popping price in a recent sale, which either reflects the bountiful growth potential of in-flight Internet service or was wildly excessive.
Global Eagle Acquisitions Corp., a Westwood shell company controlled by two former Hollywood executives, bought Row 44 Inc. for $250 million. In the same Nov. 8 deal, it also picked up a German in-flight entertainment company named Advanced Inflight Alliance AG for $180 million.
One industry expert, Tim Farrar, president of Menlo Park telecommunications and satellite consulting company TMF Associates, said the purchase price significantly overvalued Row 44, which contracts with airlines to provide satellite Wi-Fi Internet service to passengers on flights.
“It’s an extraordinarily high price for a company in such early stages of development,” Farrar told the Business Journal last week. “There’s a lot of risk in terms of where the (payback) money’s going to come from.”
A preliminary proxy statement released last week also showed that Row 44 has been losing money. Last year, the eight-year-old company paid more than $8 million to its provider to deliver Internet connections to its airline customers. The company reported revenue of only about $3.2 million from those services.
Nevertheless, Jeff Pryor, a spokesman for Global Eagle, maintained that the merged company has great potential.
“The whole in-flight connectivity business is in a state of flux right now, and it’s about to take off to the next level,” he said. “It’s the next frontier of opportunity because of the number of planes that will be introduced in the next few years, and the number of passengers keeps growing, too.”
Of about 13,000 global commercial airplanes, only about 1,800 are equipped to offer Internet access. According to industry estimates, the total number of airline passenger trips is expected to rise from about 2.8 billion in 2011 to about 3.6 billion by 2016.
Global Eagle is headed by entertainment industry veterans Harry Sloan and Jeff Sagansky. Sloan was chief executive at Metro-Goldwyn-Mayer Studios Inc. and Sagansky was president at CBS Entertainment. When they announced that the shell company would acquire and merge the two in-flight services companies, they expressed optimism.
“This is exactly the kind of worldwide digital media opportunity we’ve been seeking for Global Eagle since our initial public offering,” Sloan, chief executive, said in a statement.
Global Eagle raised about $190 million in its IPO in May 2011. The special purpose acquisition company was required to facilitate a merger before February 2013 or return capital to investors.
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