Merging company

Not all SPAC spaces are stars

As billionaires fly into space and build the biggest spaceships of all time, more and more investors are turning to the space economy. In 2020, private investment in space technologies reached a record $8.9 billion, according to a report by Space Capital. With $5.7 billion in investments during the first quarter of 2021, according to Quilty Analytics, the space market is expected to set a new record in 2021, which has yet to be calculated. The space market has been greatly enriched by deals with special purpose acquisition companies (SPACs), as the trend of organizing initial public offerings (IPOs) by merging with blank check companies has also exploded in the sector spatial.

The first space company to go public through a merger with a SPAC was satellite communications company Iridium in 2008. But SPAC’s real boom in the space sector followed the merger of Virgin Galactic in 2019 In 2021, Astra, Momentus, Spire, Rocket Lab, Planet Labs, Redwire Space, AST SpaceMobile and FarmersEdge completed their mergers with SPACs and are now publicly traded under their own symbols.

The experience of space companies that have gone public or become public through SPAC agreements could provide valuable insights for investors. Even risky investors should think twice before investing in such companies. On the one hand, the SPAC frenzy and hype around space technology provide opportunities to buy stock in a booming company and earn high profits afterwards. On the other hand, most of these businesses do not generate revenue and do not even have viable products or services. Often their business models are unproven, so their prospects are hard to predict.

In the case of space technology, potential matters, because investing in space SPACs is all about the future. In most cases, earning revenue and providing viable products are just aspirations of these companies and promises of their management. Sometimes that seems reasonable. After all, space tech companies need millions to develop a product, so they need to attract investment first. But dealing with space is actually rocket science; it’s about overcoming gravity, deep frosts and the heat of the sun. So plans and obligations are regularly postponed for years or not realized because the product is not ready – not to mention overcoming all the hurdles of bureaucracy, regulations and competitors on the way to space.

For example, Virgin Galactic’s suborbital flights, which Richard Branson founded in 2004, were supposed to begin in 2008. It took more than a dozen years before the company managed to transport its founder, accompanied by two pilots and three team members, until the end. space and back. And you have to take into account that the SpaceShipTwo wasn’t built from scratch – it’s a full-scale version of SpaceShipOne, which won the $10 million Ansari X prize in 2004. Yet the SpaceShipTwo’s commercial flights have yet to begin and have been postponed to 2022. This news, along with Richard Branson’s sale of $300 million in Virgin Galactic Holdings Inc. stock, were among the reasons the Virgin Galactic shares fell nearly in half to around $26 a share after Branson leaked.

At the end of 2021, the company was trading at around $14 per share, down from its all-time high of over $60 in February 2021. But with Branson’s flight, the company validated the technology, resumed ticket sales and almost doubled the ticket. priced at $450,000. Virgin Galactic’s chances of becoming profitable in the next few years are increasing, but investors should be prepared to wait again. In 2020, the company had revenue of $238,000 and a loss of $273 million. It reported quarterly revenue of $0.6 million in the second quarter of fiscal 2021, when four quarters prior there was no revenue at all.

As Virgin Galactic cultivates the patience of its investors and customers, space company Momentus teaches a lesson in political risk and trust. The company and Stable Road SPAC were fined a total of $8 million by the U.S. Securities and Exchange Commission for misleading investors about the technology and national security risks associated with the Russian founder of Momentus, Mikhail Kokorich. The US securities regulator claimed that Kokorich and his company had assured investors that they had successfully tested their technology in space, but in fact the test alone failed to achieve its main objectives or to demonstrate its commercial viability.

As a result, Momentus’ merger with SPAC was postponed, the company’s valuation was halved from $1.1 billion to $567 million, and Kokorich, who resigned ahead of the deal, left the United States. After the completion of the SPAC merger and the start of public trading, Momentus stock was performing poorly, trading below $5 at the end of December 2021, only a fifth of its highest price of $27.42 in February at the time of the SPAC merger. Besides the issues with the SEC, one of the reasons the company’s stock fell was news that Momentus was not planning to conduct a 2021 mission, so investors will have to wait while the company starts operations. operational. Given all the issues, the company revised its revenue projection this year to $0 and next year to $5 million.

Astra, another space startup that went public with a SPAC, was just beginning to offer commercial launches in 2021 while planning to perform daily flights four years from now. It is positioned as a fast-growing young company founded in 2016, although it was created on the basis of the rocket company Ventions, with its roots in 2005. Astra has spent 200 million dollars to develop its current launcher of the Rocket 3 series and had numerous delays in test flights.

Most of the risks for investors are hidden in Astra’s unproven business model. Even if the company proves the technology, Astra is not alone in the market, so its total revenue in 2025 is highly overstated, as is the company itself. In its report for the second quarter of fiscal 2021, Astra reported no revenue and $31.3 million in net losses. Astra shares are highly volatile and are currently trading at just over $7 just five months after their IPO and trading at around $15.

Another space company that went public through a SPAC merger last summer was Rocket Lab. Unlike Virgin Galactic, Momentus and Astra, this company actually launches satellites into space, but it also demonstrates that the rocket industry’s reliance on technology and regulation is very strong. When a Rocket Lab mission failed in May 2021, it was Rocket Lab’s third failure in 20 launches, giving the Electron rocket just 85% reliability. Even with the success of the latest mission, the low reliability of the Rocket Lab launcher is a risk factor that could influence the company’s future performance and revenue.

Currently, Rocket Lab offers flights only from New Zealand, as the company has still failed to obtain certification for the Launch Complex 2 it built in the United States in 2019. The company even had to move the launch of its first lunar mission, CAPSTONE. , scheduled for late 2021, to New Zealand, although it was originally scheduled for early 2021 from NASA’s Wallops facility in Virginia. Incidentally, Rocket Lab is under political pressure in New Zealand after launching the Gunsmoke-J satellite from the Mahia site for US military purposes in March 2021. This launch caused discussions in New Zealand regarding Rocket Lab and national security. The Green Party, the third-largest political party in New Zealand’s parliament, even drafted a bill to stop Rocket Lab from launching “military hardware” into space.

Another potential national security issue in the case of Rocket Lab is that a board member, Matt Ocko, has close ties to China, and his family members have cooperated with the Chinese government for decades. . This could be a problem, since cooperation with the US military is part of Rocket Lab’s business model. The company’s revenue reached $35 million in 2020, but Rocket Lab is far from profitable, with $55 million in net losses in 2020. Additionally, Rocket Lab expects to continue incurring losses during of the next few years.

Certainly, the SPAC merger of a space company can be successful in the long run. For example, Iridium, the first space SPAC, went public in 2008 with a valuation of $591 million and managed to achieve $583 million in revenue in 2020. But before SPAC, Iridium was already a stable operational business; the company earned $260 million in 2007. Iridium has had a long road to success and its shares traded below $10 for seven years, while now the price is around $40 per share.

Other space companies with proven technologies and business models, such as satellite imagery and data provider Planet Labs (more than 190 satellites in orbit, $113 million in revenue in 2020) or small satellite manufacturer and data specialist Spire (110+ satellites in orbit, 2020 revenue of $36 million) also went public in 2021. Although Planet Labs proved its technology and achieved strong revenue last year, its stock price has risen from $11.65 at the time of its IPO to $6.14 at the end of December 2021. Yet the price has not tripled or quadrupled, as it has with other companies. Spire, which also posted revenue in 2020 before going public, peaked in September 2021 at $19.50 per share. The company has seen a significant decline in its stock price since then, to around $3.50 by the end of 2021.

But as the examples above demonstrate, even companies with validated products and proven revenues do not offer meaningful opportunities for investors. Promises from such companies could mislead investors and end up causing them to lose money or have their investments frozen for years. Moreover, such experiments could turn investors away from companies that are really worth investing in and the space industry as a whole. Playing with space SPACs is a risky game and may not be the best option for investors.

This article does not necessarily reflect the views of the editors or management of EconoTimes