As a wave of acquisitions washes over the space industry, NewSpace investors are finally finding the exits — just not where they expected them to be.
The pace of space industry exits is picking up in the United States where private equity firms and holding companies are scooping up startups and enterprises established decades ago.
Already in 2020, private equity firm AE Industrial Partners acquired Adcole Maryland Aerospace and Deep Space Systems, engineering services and satellite component specialists it combined to form Redwire. Redwire then purchased Made In Space, an in-space manufacturing and assembly pioneer.
Amergint Technologies Holdings, part of Blackstone Tactical Opportunities, bought Raytheon Technologies’ space-based precision optics business, part of its Collins Aerospace unit. Amerigint also acquired Tethers Unlimited, a company known for software-defined radios, in-space manufacturing and propulsion technology.
Voyager Space Holdings acquired Pioneer Astronautics, the aerospace research and development firm established by Robert Zubrin, Mars Society founder and president. It was Voyager’s second acquisition since it was founded in October 2019 by prominent space angel investor Dylan Taylor. The first was Altius Space Machines, a robotics and technology startup.
“These groups all see space as a long-term market, or they see that the rest of the world sees that,” said Ian Fichtenbaum, CEO of Bradford Space, part of the American Industrial Acquisition Corp. “There’s more interest in jumping in. That’s driving up equity values.”
For years space industry entrepreneurs and investors bemoaned the lack of exits, like initial public offerings and acquisitions that offered investors an opportunity to sell their stake in a company. Exits are now on the rise thanks to the spate of acquisitions and Virgin Galactic’s headline-grabbing IPO and reverse merger.
“Aerospace primes also are starting to realize that they need to innovate through acquisition,” said Meagan Crawford, managing partner for SpaceFund, a venture capital and private equity firm established in 2019 to back space startups. “That’s a positive trend. We need that exit activity to help make the case for space venture capital.”
The U.S. market alone racked up 11 exits in 2019 compared with eight in 2018. With 2020 a little more than half over, eight U.S. space companies have been acquired and more deals are in the works.
Voyager, for example, anticipates making roughly four deals per year, said Taylor, CEO and chairman of the holding company he established to make long-term investments in space companies. Voyager buys at least 51 percent of the firms it acquires, usually claiming a 70 to 80% stake.
Redwire, too, is just getting started.
“We still think there’s a lot of great capabilities and great companies that are out there that have proven that they could move past that first stage of growth, prove their technology and gain a little bit of flight heritage,” said Peter Cannito, Redwire chairman and CEO. “They need a partner that can take their capability to the next level. It’s that fact that is driving our level of acquisition activity right now.”
Amergint declined to comment on its plans.
Bradford Space “has a couple of things in our sights that we’d like to execute soon,” Fichtenbaum said. Bradford Space acquired Deep Space Industries in 2019 and ECAPS, a Swedish company known for satellite thrusters and nontoxic propellant, in 2017.
Since acquiring Deep Space Industries, Bradford has focused on organic growth, combining the capabilities of the firms it acquired to develop a maneuverable spacecraft bus.
“If you go around buying small companies, you have to nurture them and make them play together,” Fichtenbaum said. “You have to identify the synergies in the technical architecture.”
EXITS IN A RECESSION
Exits tend to occur when the economy is strong. However, the COVID-19 pandemic and recession are doing little to dampen enthusiasm among leaders of the companies shopping in the space sector.
“These are not restaurants or hotels or airlines,” Fichtenbaum said, citing some of the industries hit hardest by stay-at-home orders and social distancing rules aimed at limiting the spread of the coronavirus. “Our companies have been operating throughout. There’s been a little effect in terms of future program delays, but we are executing on all the current programs.”
Space investors say they are looking well beyond the current public health and economic crisis.
“For most exits which are driven by strategic acquisitions or traditional private equity, the near-term returns are important,” Taylor said by email. “Voyager, due to the fact that we are a purpose-built operating company and not an investment fund, is different as we have a longer time horizon for investment. We are less concerned about returns 12-24 months out and are more focused on value creation 5+ years in the future.”
Similarly, Redwire parent AE Industrial Partners, is looking further into the future.
“Our view is that space over the next decade will be a significant growth market,” said Kirk Konert, partner at AE Industrial Partners. “We want to find great businesses and teams to back in that sector.”
CONSOLIDATION AHEAD?
It’s unclear whether the recent wave of acquisitions will lead to significant consolidation.
“It’s just a different type of deal flow,” said Van Espahbodi, Starburst Aerospace co-founder and managing partner. “Rather than seeing hard venture cash going into big idea companies, we’re now seeing a different type of financial transaction that helps early-stage investors and gives these companies that have been around for some time the leg up to continue to grow.”
In some cases, private equity firms may combine subsystem suppliers to form “an integrated solution that becomes a more compelling business,” Espahbodi said. “That business can then become a viable acquisition for a larger company.”
In other cases, small space firms could be merged into vertically integrated businesses meant to stand on their own. That’s the approach favored by Max Polyakov, founder and CEO of Earth Observing System (EOS) and Noosphere Venture Partners managing partner.
Polyakov has a multi-decade plan for EOS that brings together launch vehicles, satellites, sensors, ground segments and data analytics.
“It’s a very expensive, long-term game,” Polyakov said. “In space, exits probably happen in 10 years, 20 years or maybe never. That does not mean you are not going to make money in space.”
THE IPO GAME
For years, venture capitalists saw IPOs as a promising exit strategy. While that worked for Virgin Galactic, few other space companies possess the name recognition and glamour of the suborbital tourism firm established in 2004 by British billionaire and Virgin Group founder Richard Branson.
What’s more, “the IPO market has been very depressed in the last couple of years,” Crawford said. “IPOs have become very expensive and difficult to do.”
Still, investors muse privately about creating the type of company that could cash in on public interest in space.
“We have some ideas for how to play the IPO game,” said an investor who asked not to be identified.
This article originally appeared in the Aug. 3, 2020 issue of SpaceNews magazine.