8/8/2025
Activist Carronade Spots a Hidden Gem in Viasat’s Business. How the Firm May Unlock Value
CNBC (08/08/25) Squire, Kenneth
Viasat Inc. (VSAT), a global communications and defense technology company that operates at the intersection of secure communications, global connectivity, as well as aerospace and defense technology, has a stock market value of $3.44 billion ($25.62 per share). Carronade Capital Management LP has a 2.60% stake in the company. On July 31, Carronade sent a letter calling on Viasat to separate its Defense and Advanced Technologies (DAT) business through a spin-off or initial public offering. Viasat operates in two businesses segments: Communications (73% of revenue and 80% of earnings before interest, taxes, depreciation, and amortization) and (DAT) (27% of revenue and 20% of EBITDA). Communications is Viasat’s legacy satellite business, with offerings of fixed broadband, government, maritime and inflight communications (IFC). DAT offers defense-technology platforms for information security and cyber defense, space and mission systems, tactical networking and other advanced technologies. This is a newer but rapidly growing business, with high to mid-teens revenue growth. Despite the company’s strong strategic positioning, prior to Carronade’s engagement, Viasat’s share price had significantly underperformed, down 21.12%, 51.56%, and 57.98% over the past 1-,3-, and 5-year periods, respectively. As Carronade describes in its letter, this is a “materially misunderstood” business. Carronade believes that the reason why this company is trading down is simple: Viasat has been treated by the market as a small-cap legacy satellite company that has been marked for death due to new high-profile entrants like Starlink. This narrative is two pronged: (i) that Starlink and similar entrants will make Viasat’s Broadband business obsolete and (ii) that they are encroaching on Viasat’s IFC market dominance. It is true that the broadband business is declining, as revenue is down over 27% year over year, but this is only a piece of the Communications business and the worst piece with the lowest margins. The second part of this narrative — the market threat in IFC — is greatly exaggerated. Viasat’s IFC business is not going anywhere. The company’s customers have long-term contracts (five to 10 years) and face high switching costs as they would need to replace their entire connectivity systems. Viasat presently has customers with 4,120 planes and a backlog of another 1,600 planes from just those existing customers. And this is a very nascent market with only approximately one third of airplanes globally having Wi-Fi, so there is a huge untapped market, which Viasat should get a large piece of despite competition from Starlink and other competitors. Additionally, Viasat is aware of the Broadband drag and is actively pivoting out of it to double down on the growth businesses with better margins. Exiting the broadband business over time while the other businesses continue to grow could be a plus for the company as it will no longer be viewed as a sleepy broadband communications business. But that isn’t even the biggest misunderstanding of Viasat’s business, according to Ken Squire, founder and president of 13D Monitor. The DAT business has been buried under the legacy business and its accompanying negative sentiment. DAT is a hidden gem, with best-in-class EBITDA margins of 28%, double-digit revenue growth, and significant exposure to hot button next-generation defense and dual-use technologies such as the Golden Dome, next-generation encryption, drones, device-to-device (D2D), and low Earth orbit. While Carronade highlights how each of these translates into promising growth avenues, perhaps the best illustration of DAT's mis-valuation lies in its D2D platform services, which is designed to enable global connectivity directly to unmodified smartphones and other Internet of Things devices. DAT has $1.22 billion of revenue and $285 million of EBITDA. The peer comps to DAT all have lower margins and weaker growth profiles, yet trade at multiples ranging between the mid-20s to above 80-times EBITDA. Viasat currently trades at approximately six-times EBITDA. Carronade's proposed solution is simple but compelling: spin-off or IPO the DAT business to unlock this intrinsic value and eliminate the drag caused by the narratives orbiting the satellite business. Carronade models 20-times to 51-times (comp median) valuations for this business giving it a value of $6.3 billion to $16.2 billion, versus a present enterprise value for the entire company of approximately $8 billion. This leaves the Communications segment with $3.3 billion of revenue and $1.2 billion of EBITDA. Applying a conservative 4-times value to this business creates another $4.9 billion of value, and there is another $1 billion of value from the upfront and long-term annual payments pursuant to a recent legal settlement with Ligado Networks. According to the Carronade analysis, this gives Viasat a total valuation of anywhere from $48.93 per share to $112.49 per share or a 76% to 304% return. Carronade is a multi-strategy firm that focuses on investing in non-traditional, undervalued debt instruments. Viasat is highly levered, and its investment base is filled with creditors, so we imagine Carronade likely entered its position (currently approximately 2.6% of shares outstanding) in a similar fashion. Fortunately for Viasat shareholders, Carronade's involvement should help bring the market's attention to this strong value case. While Carronade is not known for confrontational activism, that is OK, because this is a situation where no more than a nudge should be needed and Carronade's best weapon is the power of the argument. Moreover, management has already signaled that they have been considering selling some of the DAT business, suggesting that they may already recognize Carronade's value proposition and are headed in the right direction.
Read the article