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Satellite 2021 exhibit hall
The Satellite 2021 exhibit hall included a wide range of companies, from major operators and manufacturers to small component suppliers. One CEO predicted the wave of newly public space companies will seek to acquire many of those suppliers. (credit: J. Foust)

The great space company sale

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The exhibit hall at last week’s Satellite 2021 conference in the suburbs of Washington, DC, was a little quiet. Some companies that normally exhibit at the show, one of the major conferences in the commercial space industry, elected to reduce their presence or not exhibit at all, either because of the timing of the conference—it normally takes place in the spring—or because of ongoing pandemic travel restrictions. There was, though, still an assortment of satellite operators, manufacturers, and suppliers of components and related services.

“Every smart person, every brilliant technology downstairs is going to be bought by one of these companies,” Kemp predicted.

But, in a conference room a couple floors above that exhibit call, one industry executive predicted bigger disruptions to come. “This is the last Satellite conference that will be like this,” said Chris Kemp, CEO and co-founder of Astra. He said companies like his are going to be responsible for that change.

“A dozen companies just went public and all have billions of dollars,” he explained. “Every smart person, every brilliant technology downstairs is going to be bought by one of these companies, and all of these great technologies and all these great products are not going to be available to the primes.”

Those companies that have gone public, like Astra, have done so through a merger with what’s known as a special-purpose acquisition company, or SPAC, sometimes called a “blank check” company (see “Space investors head to the exits, at last”, The Space Review, February 15, 2021.) A SPAC raises money by going public with the intent of merging with a privately held company. That allows the merged company to go public with the proceeds of the SPAC (along with, in many cases, a concurrent funding round) without having to go through the typical initial public offering (IPO) process.

SPACs gained popularity in the markets generally in the last year, and space is no exception. In the past 12 months companies ranging from launch startups to operators of satellite constellations have announced SPAC mergers, many of which have been completed. BlackSky, a geospatial intelligence company that operates a fleet of high-resolution imaging satellites, completed its SPAC merger last week; a week earlier, Redwire, a space technology firm, completed its SPAC deal.

Another company that has gone public through a SPAC is Rocket Lab, which completed its SPAC deal last month. It staged a virtual version of a bell-ringing ceremony on the Nasdaq exchange on its first day of trading, with company CEO Peter Beck and other employees participating from New Zealand rather than Nasdaq’s New York headquarters.

Rocket Lab raised $777 million in the deal, funding which will go towards its Neutron medium-class launch vehicle it announced earlier this year. But Beck said in an interview that the funding from the deal, as well as having a publicly traded stock, will allow it to go acquire other companies.

“There’s a real opportunity to do consolidation in this space, and we intend to be one of the consolidators,” he said.

“The space industry at large is hampered by scale,” Beck said. “If you go to any of these shops and ask for 2,000 of anything, generally people’s heads explode.”

In an earnings call last week, the first since Rocket Lab went public, both Beck and Rocket Lab CFO Adam Spice said they were on the lookout for companies to acquire. They didn’t mention specific companies but suggested they were interested in acquiring smaller suppliers of spacecraft components that could benefit from the resources Rocket Lab could provide.

“There’s a lot of mom-and-pop, bootstrapped companies where they’re founder-controlled,” Spice said. “They’re really nice businesses that are reasonably integratable, they’re digestible from that perspective. They’ve also had a focus on profitability, so you’re not picking up what are typically ventured-funded cash-burning operations. We’re seeing quite a bit of opportunity.”

Rocket Lab has already made one such acquisition. Last spring, it acquired Sinclair Interplanetary, a Canadian producer of smallsat components such as reaction wheels and star trackers. Rocket Lab acquired Sinclair to use those components on its own Photon spacecraft, but is also continuing to sell them to other companies. It announced at the beginning of September it was scaling up production of reaction wheels, using part of an existing production line in New Zealand.

“The space industry at large is hampered by scale,” Beck said. Sinclair used to produce no more than 100–150 reaction wheels a year, but the new production line can produce up to 2,000 such components annually. “If you go to any of these shops and ask for 2,000 of anything, generally people’s heads explode.”

Spice said Rocket Lab had about a half dozen potential acquisitions in its pipeline but didn’t indicate when it would complete any of them. “The outlook looks good for us,” he said. “The Sinclair acquisition has really emboldened us to lean forward and look at opportunities.”

Astra, too, has started acquiring companies. In June, it announced it was buying Apollo Fusion, a startup developing electric propulsion for satellites. The companies said the deal was worth up to $145 million based on Apollo Fusion’s ability to meet technical and revenue milestones.

“What this is about is adding a really core piece of technology to Astra’s platform,” Kemp said when Astra announced the deal. “It’ll unlock a whole new set of customer opportunities for us.”

Astra, when it announced its SPAC merger earlier this year, said it planned to move beyond launch to spacecraft. The company will develop satellite buses designed to launch on its rockets, providing a vertically integrated solution like Rocket Lab with its Photon satellites launched on Electron rockets, and thus may be in the market for suppliers of key technologies.

Others going public may have similar views. Last month, launch company Virgin Orbit announced it would go public via a SPAC. The deal with NextGen Acquisition Corp. II would raise up to $483 million, including an investment by Boeing. Part of those proceeds would go to scaling up its current LauncherOne air-launch business, as well as investing in new launch capabilities (a slide in an investor presentation showed a larger rocket, called LauncherTwo, placed on top of its Boeing 747 aircraft rather than attached to its wing as LauncherOne is.)

“If you’re a company that’s thinking about selling out, taking stock in a company that has never launched a satellite and whose valuation is based on launching every single day is hard to do,” Musey said.

Virgin Orbit also announced it would go into the “space solutions” business, developing a constellation of satellites to provide Internet of Things services and Earth observation. The company plans to start launching satellites in 2023, and projects that part of the business to be more than 20% of its overall revenues by 2026. It would certainly be a candidate for making acquisitions to build up a satellite manufacturing line.

Redwire, while not in the launch business, is another public company likely to use its capital and stock to buy up companies. Redwire was formed last year through the merger of two space component suppliers, and has since bought several more, such as space manufacturing company Made In Space.

“We do have a number of opportunities that we are looking at” in terms of companies it’s considering buying, said Peter Cannito, CEO of Redwire, during an analyst day presentation in July. “Space is a highly fragmented market and Redwire has been the buyer of choice, combining niche technology companies that provide tremendous flight heritage with new space startups with disruptive technologies.”

Not every space company going public through SPACs is likely to be buying up companies. Some have said they plan to spend their capital on their own capabilities, like Satellogic, an Earth observation company that plans to use its SPAC proceeds to build out its satellite constellation.

At Satellite 2021, some of the other people on the same panel as Astra’s Kemp offered a more cautious assessment. “There’s always the questions of when you think the consolidation will happen and where are the acquisitions,” said Michael Collett, managing partner of Promus Ventures, a fund that has invested in several space companies. “We just haven’t seen a lot in space.”

Some the early-stage companies, like Astra, that have gone public might struggle to use their stock as capital for acquiring companies. “I don’t think a SPAC stock will be a good acquisition vehicle in many cases because a company hasn’t been proven out,” said J. Armand Musey, president and founder of Summit Ridge Group.

Share in some space companies that have going public via SPACs have been languished, or in the case of Astra, fell sharply after its latest failed effort to get to orbit (see “Small launch vehicles face their biggest test,” The Space Review, September 7, 2021.) “If you’re a company that’s thinking about selling out, taking stock in a company that has never launched a satellite and whose valuation is based on launching every single day is hard to do,” Musey said.

But even skeptics say that capital sloshing around the industry thanks to SPACs might prompt companies to acquire suppliers or make other strategic deals—or encourage competitors to make their own deals. “Space is having its moment,” said Collett. “Traditionally, people who weren’t acquisitive may change.”

As for whether it will revamp the roster of companies that participate at conferences like Satellite 2021, well, we won’t have long to wait. Conference organizers plan to move back to their traditional March date for the next conference, meaning that Satellite 2022 will take place in just six months.

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