The SPAC(e) Race
The transition from being privately held to publicly held offers benefits both to a company and investors. Historically, most companies have taken the route of the traditional IPO. Traditional IPOs require a thorough underwriting process and are subject to a plethora of regulations making them lengthy and at risk of falling through. Whereas Special Purpose Acquisition Companies (SPACs) are hollow companies whose sole purpose is to acquire early-stage companies to take them public. The target company becomes publicly traded by merging with the SPAC.
As a substitute for the traditional route, the last few years have seen an unprecedented jump in target companies utilizing SPACs to go public. In 2020, SPACs raised $79.87 billion in proceeds from 237 public offerings, surpassing the $13.6 billion raised in 2019. Further, fundraising from SPAC IPOs surpassed that of traditional IPOs, which raised $67 billion in 2020.
The SPAC route has recently been favored by growth companies—especially those in innovative industries, for example, companies developing technology that is not currently a dominating market, like LEO satellites, but projected to grow in the coming years. Possible reasons for this include that SPACs have more flexibility in their valuations of not-yet-profitable companies and can give more serious consideration to future earnings. Additionally, target companies have more leverage to market themselves and promote their offering through a SPAC than a traditional IPO due to regulatory differences. Further, asset manager ARK Invest that builds funds specifically around these “disruptive innovation” companies was among the most successful this year across all industries, which speaks to the potential of this market.
Astra, an innovative rocket launch company, recently announced its IPO by merging with SPAC, Holicity. Astra is currently in the final development stages for its rocket launch systems, which would support its goals of providing satellite delivery services. Dubbed “the FedEx of space,” Holicity’s acquisition of Astra values the company at $2.1 billion. The capital generated from the merger offers the company the opportunity to accelerate its development process of manufacturing smaller, inexpensive rockets that can be controlled remotely and shipped anywhere. The SPAC route to a public offering is particularly favorable for Astra for the same reasons it is favorable for other innovative companies that do not yet offer their services or products to customers and do not yet turn a profit: firstly, the IPO proceeds provide the company with the capital needed for the development of its services, and secondly, it values the company based heavily on potential future growth, rather than traditional profitability metrics.
Momentus is another space company that recently announced its SPAC IPO. Merging with Stable Road Acquisition Corp., Momentus specializes in providing in-space transportation infrastructure, and LEO satellite positioning and maintenance services. Already having partnerships with NASA, Lockheed Martin, SpaceX, and others, Momentus was valued at $1.2 billion and is one of the leading companies in space transportation. Their IPO journey has not been without obstacles, but the young company is still on track to become publicly traded this spring.
BlackSky is going public with Osprey Technology Acquisition Corp. under the ticker BKSY this July. Soon to be on the NYSE, BlackSky collects and analyzes geospatial data with a fleet of satellites to provide customers with timely satellite imaging and intelligence. They hope to direct the capital raised into expanding their data analysis platform, increase their satellite fleet, and grow their market efforts.
AST & Science is a satellite broadband company that is also going public through a SPAC in early 2021. New Providence Acquisition Corp. will merge with AST & Science listing it on the Nasdaq exchange under the ticker ASTS. AST & Science manages a “space-based satellite network” called “SpaceMobile” to allow mobile phones to directly connect to their broadband 5G network bypassing intermediate devices like SpaceX’s Starlink terminals or Iridium’s mobile satellite phones.
Rocket Lab is a satellite manufacturer and launch company focusing on monitoring weather, climate change, and space debris. Vector Acquisition Corp. is acquiring Rocket Lab to join the Nasdaq exchange under the ticker RKLB and is valuing the company at about $4 billion. Rocket Lab is an industry leader in LEO launches for small and medium-sized loads. They plan on using the capital to expand their rocket fleet and developing a new rocket for heavier payloads.
The rise of SPAC offerings for innovative, outer space companies presents a unique opportunity for retail investors. More than ever before, the retail investor has the ability to involve himself or herself in a diversified range of companies in the space exploration sector. The sector is becoming less dominated by a small number of big names and more accessible to the general public. The increasing amount of publicly traded space companies also presents to investors the opportunity to re-imagine traditional investing principles. Traditional profitability metrics, such as the PE ratio, are not particularly well-suited for many of these outer space companies who do not yet generate profit, or even revenue, as they have not yet launched commercial operations. Analysts and investors of space stock must craft creative investing principles based upon generally unorthodox financial metrics in order to understand the value of space stocks. Such unorthodox valuation methodologies should be dependent on potential future growth. Because the value of space stocks is highly speculative and sensitive to growth assumptions, it is important that retail investors remain cautious and thoroughly assess risk.
Ross Kujdych is a Junior in Georgetown College studying Mathematics and Sociology. He is interested in the rapid innovations surrounding access to space, and how they impact our current lives on earth. Ross also looks forward to studying future investment opportunities that space technology and exploration offer.
Madeleine Meier is a Sophomore in the McDonough School of Business studying Finance and Management. She is interested in the privatization of the space industry, and she is enthusiastic about studying how to foster a healthy capital ecosystem in the industry.