Investors see multiple avenues for space sector exits

Space

SAN FRANCISCO – Money will continue flowing into the space industry from government agencies, private equity firms and public markets, according to panelists at the 2021 SmallSat Symposium.

“It has never been a better time to raise money for ventures in and around space,” said James Murray, a partner at investment bank PJT Partners.

While the COVID-19 pandemic has taken a toll on some traditional satellite communications companies that rely on airline and cruise ship revenue, small companies are finding many ways to obtain the capital they need to grow.

In the last year alone, private equity firms have scooped up space companies including Blue Canyon Technologies, Braxton Science & Technology Group, NanoRacks and Tethers Unlimited. Venture capital has poured into Iceye, Kymeta and Relativity Space. Sovereign wealth funds helped OneWeb emerge from bankruptcy. And SpaceX continues to serve as an investment magnet with $1.9 billion raised in the last funding round.

The pandemic also highlighted the value of commercial space activities for government work. Intelligence analysts relegated to their home offices by the pandemic were able to access commercial space data.

“It forced them to understand how that commercial data might play a part in what they do on a daily basis,” said Tom Gillespie, In-Q-Tel managing partner.

When financial markets froze early in the pandemic, government officials also expressed concern that U.S. adversaries could acquire space industry startups desperate for cash. “There was a lot of discussion at that point about supporting the industry,” Gillespie said.

For traditional satellite communications companies, 2020 was more challenging. Intelsat, OneWeb and Speedcast International declared bankruptcy. OneWeb emerged under an ownership group led by Bharti Global and the British government. Speedcast announced plans to reorganize under private equity firm Centerbridge Partners.

“Putting aside the financial damage it is causing, recapitalization of the industry makes the balance sheets much more healthy,” said Noel Rimalovski, founder and managing partner of investment bank GH Partners. “What’s transpired over the past 12 to 14 months is a traditional economic cycle reset and very healthy for the industry.”

Private equity rollups will continue as space companies continue to look for exits and opportunities for growth, said John Stack, managing director of financial services firm Canaccord Genuity.

Dallas-based private equity firm Trive Capital announced in January that it was combining Aerospace Engineering Corp. and AMRO Fabricating Corp. to form Karman Missile & Space Systems to focus on manufacturing components for space, missile, interceptor and hypersonic markets.

Similarly, Arlington Capital Partners, a private equity firm based in Washington, combined AEgis Technologies and Applied Technology Associates to create BlueHalo to focus on government missions including space, missile defense and intelligence.

Meanwhile, special purpose acquisition companies (SPACs) which offer companies a shortcut to publicly trading shares, are continuing to court space companies. While SPACs are not new, the market environment has changed. Hedge fund investors and space aficionados are eager to invest in the sector. At the same time, space company directors and managers want access to millions of dollars at attractive valuations.

“It’s created a bit of a virtuous cycle that has led to a large number of companies in this sector debating whether or not to pursue a SPAC transaction,” Murray said. “I don’t think this is going to slow down in the very near future.”

Still, “SPAC transaction aren’t for everyone,” Murray added. Becoming a public company carries legal and regulatory obligations. “That means many more lawyers and building up your senior management to fill out functions that in most cases weren’t anticipated to be in the crosshairs for a couple of years down the road,” he added.

It’s too soon to tell how long SPACs will remain in vogue. Speakers noted, however, that companies considering SPACs should be aware of the potential risks as well as the rewards.

“There’s some risk of companies that are not ready for primetime going out,” Gillespie said, which could cause trouble for future space industry SPAC deals.

“It feels like a little bit of a rush to exit,” Gillespie said. “We’ll see if the ones that go out right now are going to do well.”

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