- Parabolic Arc
- November 29, 2023
SPACovirus Sweeps Space Sector
Wall Street’s latest easy money craze has attracted a growing number of space companies. But, just because they can go public, should they?
by Douglas Messier
Seven space companies have gotten caught up in the SPACovirus sweeping through Wall Street. The impact on the space industry is going to be interesting to watch.
A SPAC is a special purpose acquisition company. It’s a publicly traded investment firm that, with outside investors, acquires or merges with another company, and then takes the acquisition public under its own name.
Since Virgin Galactic (SPCE) went SPAC and began trading on the New York Stock Exchange (NYSE) in October 2019, six other space companies have announced plans to go public in the same way. The soon to be SPACed companies include Rocket Lab, Astra Space, Momentus, Spire Global, BlackSky and AST & Science (AST SpaceMobile). Virgin Orbit, a launch provider that was spun off from Virgin Galactic, is evaluating whether to follow their lead.
SPACs provide companies with an infusion of cash and access to markets without what Virgin Group Chairman Richard Branson calls the “rigmarole” of a tradition initial public offering (IPO). In other words, with far less scrutiny.
While big name firms are busy setting up deals, SPACs are viewed as a joke on Wall Street because they allow companies to go public that are not sufficiently mature or lack solid prospects for profitability. In short, many deals are good for those who fund them and company insiders, but bad for retail (ie., non-professional) investors.
With that said, let’s take a look at how the SPACovirus has swept through the space industry. What follows are brief descriptions of the SPAC deals; Parabolic Arc will publish more in-depth analyses in the weeks ahead.
NYSE Symbol: SPCE
Headquarters: Las Cruces, NM
Services: Suborbital space tourism and microgravity research flights, supersonic point to point travel
SPAC: Social Capital Hedosophia (SCH)
Key People: Richard Branson (Virgin Galactic), Chamath Palihapitiya (SCH), Ian Osborne (SCH)
Previous Investment: $1+ billion
SPAC Investment: $808 million (SCH: $708 million; Palihapitiya: $100 million)
Initial Valuation: $2.3 billion
Subsequent Raise: ~$460 million (August 2020)
Listing: New York Stock Exchange (NYSE)
Listing Date: Oct. 28, 2019
Virgin Galactic turned to Palihapitiya, known as the “king of SPACs,” after a $1 billion investment from the Saudi Arabian government collapsed. Virgin Galactic withdrew from a memorandum of understanding with the kingdom in October 2018 amid an international uproar over the murder of dissident writer Jamal Khashoggi in the Saudi consulate in Turkey.
The SPAC deal included $708 million from SCH and $100 million from Palihapitiya personally. Although $808 million is a lot of money, the actual deal was not as lucrative for the company as it first appeared.
A total of $300 million (plus 100 million shares) went to the Virgin Galactic’s existing stockholders, which included the Virgin Group, Branson and Abu Dhabi’s sovereign wealth fund, Mudabala Investment Co. Mudabala is the parent company of Aabar Investments, which spent $390 million for a 37.8 percent of the Virgin Galactic.
An additional $48 million of the $808 million was eaten up with investment fees. In the end, $460 million was added to Virgin Galactic’s balance sheet so the company could build additional SpaceShipTwo rocket planes and WhiteKnightTwo mother ships and prepare for commercial tourism service. The money wouldn’t last as long as the company hoped.
In the investor presentation published before Virgin Galactic went public, the company forecast that it would begin carrying tourists on suborbital flights in June 2020 — within eight months after it began trading on the NYSE on Oct. 28, 2019.
As with virtually all of the company’s schedules over its 16-year history, this one turned out to be a mirage. The current plan is to begin space tourism flights in early 2022 — a delay of at least 18 months.
Why? What Virgin Galactic never publicly disclosed was the near catastrophic failure the company’s only SpaceShipTwo, VSS Unity, suffered during its second suborbital flight test on Feb. 22, 2019. The vehicle’s horizontal stabilizer was severely damaged; Virgin Galactic’s then-vice president of safety, Todd Ericson, said he was amazed the company didn’t lose the ship and its three-member crew. Ericson would step down from the post months later.
Virgin Galactic apparently didn’t consider the incident and the delays it caused material to investors before or after it went public. The incident only became public through media reports in February 2021 — nearly two years after the flight and 16 months after Virgin Galactic began trading on the NYSE.
Modifications to VSS Unity — and the ongoing COVID-19 pandemic — resulted in a 22-month delay in the next suborbital flight test. On Dec. 12, 2020, VSS Unity‘s suffered an aborted engine firing after its computer lost contact with it due to electromagnetic interference (EMI).
Fixing the EMI problem has delayed the next suborbital test by five months to May 2021. That will stretch the delay between powered flights to around 27 months.
As optimistic as ever, Virgin Galactic plans to complete VSS Unity’s flight test program by late summer or early fall with four additional suborbital trips. The company also plans to begin flight tests of a second SpaceShipTwo this summer. If all goes well, both vehicles would begin commercial flights in early 2022.
The 18-month delay in space tourism flights has eaten into the $460 million the company received from the SPAC deal. Virgin Galactic suffered a net loss of $273 million in 2020. It also faces the prospects of minimal revenues for this year.
Of course, once a company goes public, it can sell more shares. Virgin Galactic did exactly that last August when it raised an additional $460 million.
Despite the delays, the stock has risen significantly; that has allowed insiders to cash out. Branson sold hundreds of millions worth of stock last year to prop up his travel-dependent Virgin empire, which has been hard hit by the COVID-19 pandemic.
Palihapitiya, who is Virgin Galactic’s chairman, turned his $100 million investment into a $311 million windfall by liquidating all of his personal shares. He has said he needs the cash to fund a venture focused on climate change. Palihapitiya continues to indirectly own shares through SCH.
So a company that has already consumed more than a $1 billion without ever generating a profit or carrying a single passenger to space has turned into a cash cow for a pair of billionaires. It also made a small group of company officers into instant millionaires. (I’ll deal with that in greater detail in a future story.)
Retail investors who bought when the company was listed at $11.79 are up. (The stock closed at $33.74 on Wednesday). But, what happens if delays and the red ink continue longer than anticipated? What if Virgin Galactic’s rosy financial forecasts prove to be a mirage? What if the stock crashes because of an actual crash?
Time will tell.
Headquarters: Long Beach, Calif.
Services: Small satellite launch provider, satellite manufacturer
SPAC: Vector Acquisition Corp.
Key People: Peter Beck (Rocket Lab), Alex Slusky (Vector)
SPAC Investment: $750 million
Initial Valuation: $4.1 billion
Listing: Nasdaq (RKLB)
Listing Date: Transaction expected to close in Q2 2021
Rocket Lab Founder/CEO Peter Beck once vowed the company would not build a launch vehicle larger than the Electron. However, competition and a limited market changed Beck’s mind.
SpaceX Transporter rideshare flights are cutting into Rocket Lab’s market. In January, a Falcon 9 launched a record 143 satellites into orbit. Several additional Transporter missions are planned over the next year. Other companies are also providing rideshare services.
There isn’t all that much money to be made launching 300 kg to low Earth orbit on a single booster. Two of Rocket Lab competitors, Firefly Aerospace and Relativity Space, are planning to develop boosters larger than the small ones they hope to launch on maiden flights later this year.
Rocket Lab’s SPAC deal will fund the Neutron, a reusable medium-lift booster capable of launching 8,000 kg to low Earth orbit. Among other things, Neutron is being targeted at the market for launching satellite constellations. The initial launch is planned for 2024.
Neutron’s first stage will land on an ocean platform for reuse. Rocket Lab plans to launch the booster from the Wallops Flight Facility in Virginia.
Headquarters: Alameda, Calif.
Services: Small satellite launches
SPAC: Holicity Inc.
Key People: Chris Kemp (Astra Space), Craig McCaw (Holicity)
Investment: $500 million
Initial Valuation: $2.1 billion
Listing: Nasdaq (ASTR)
Listing Date: Transaction expected to close in Q2 2021
A $500 million investment and a $2.1 billion valuation are pretty good for a company that has never placed a single satellite into orbit.
It’s not that Astra Space hasn’t tried. Last August, the company launched Rocket 3.1 from Pacific Spaceport Complex — Alaska on Kodiak Island. The booster was destroyed when it veered off course during its first-stage burn.
Astra’s Rocket 3.2 had a much smoother flight three months later. The second stage reached suborbital space, but it did not achieve the velocity needed to reach orbit. Company officials said a better propellant mix will be used on the next flight.
The Rocket 3 series is designed to place payloads weighing 25–150 kg into LEO for the low price of $2.5 million.
Fun fact: Holicity funder Craig McCaw was one of the pioneers of large satellite constellations. In 1994, he teamed with Microsoft Co-founder Bill Gates to create Teledesic, a company that planned to provide broadband satellite communications using 840 satellites (later reduced to 288 spacecraft).
But, Teledesic was a little ahead of its time. The company ceased operations in 2002, and sold its spectrum licenses the following year.
Headquarters: Santa Clara, Calif.
Services: In-orbit satellite transportation, deorbiting, life extension, refueling and repositioning
SPAC: Stable Road Acquisition Corp.
Key People: Mikhail Kokorich (Momentus), Brian Kabot (Stable Road)
Investment: $310 million
Initial Valuation: $1.2 billion
Listing: Nasdaq (MNTS)
Listing Date: Transaction expected to close in early 2021
Going public usually allows company founders to take their venture to the next level. For Momentus, the company’s SPAC deal resulted in their departures.
Founding CEO Mikhail Kokorich resigned in late January after the Committee on Foreign Investment in the United States (CFIUS) raised concerns about foreign ownership due to his status as a Russian citizen.
Kokorich and a company he and his wife control, Nortrone Finance S.A., “relinquished their ability to direct the voting of any shares in Momentus through the implementation of trust structures and certain voting arrangements,” according to a regulatory finding.
The same filing said Momentus co-founder and former director Lev Khasis and and his wife, Olga, gave up their rights to direct voting on Momentus shares. Lev Khasis is a legal permanent U.S. resident and also a Russian citizen. His wife is an American citizen.
Brainyspace LLC, which is owned by Olga Khasis, also agreed to give up the right to direct Momentus voting shares in order to satisfy concerns about foreign ownership.
“The Kokorich Parties and Brainyspace have agreed with Momentus that they will fully divest their shares by March 1, 2024, or as required by CFIUS,” the filing said.
Headquarters: San Francisco, Calif.
Services: LEMUR multi-purpose nanosats provide data for maritime, aviation, weather, and climate uses
SPAC: NavSight Holdings Inc.
Key People: Peter Platzer (Spire Global), Bob Coleman (NavSight)
Investment: $475 million (NavSight: $230 million; Tiger Global Management, BlackRock Advisors, Hedosophia, Jaws Estates Capital, and Bloom Tree Partners investors: $245 million)
Initial Valuation: $1.6 billion
Listing: New York Stock Exchange (SPIR)
Listing Date: Transaction expected to close in summer 2021
Spire Global plans to use the infusion of cash to expand its “space-as-a-service” business model. The company uses a constellation of multi-purpose nanosatellites called LEMURs (Low Earth Multi-Use Receiver) to provide “subscription-based data, insights, and predictive analytics to global customers across a range of industries, including maritime, aviation, weather, and climate.”
NavSight is providing $230 million for the deal. The remaining $245 million is being provided by Tiger Global Management, BlackRock Advisors, Hedosophia, Jaws Estates Capital, and Bloom Tree Partners.
The funding will allow Spire Global to expand its services and improve its bottom line. The company had gross revenues of $18 million and an operating loss of $24 million in 2020.
Headquarters: Herndon, Va.
Services: real-time satellite geospatial intelligence, imagery, and data analytics
SPAC: Osprey Technology Acquisition Corp.
Key People: Brian O’Toole (BlackSky), David DiDomenico (Osprey)
Investment: $450 million
Initial Valuation: $1.5 billion
Listing: New York Stock Exchange (BKSY)
Listing Date: Transaction expected to close in July 2021
Founded in 2014, BlackSky provides real-time monitoring of the Earth using a fleet of small satellites as well as analysis of what the spacecraft are seeing on the ground.
“BlackSky’s artificial intelligence/machine learning powered analytics platform derives unique insights from its constellation as well as a variety of space, IoT, and terrestrial based sensors and data feeds,” the company said in a press release. “BlackSky monitors global events and activities providing enhanced situational awareness for commercial and government customers worldwide.”
The $450 million deal includes an investment of $180 million from Tiger Global Management, Mithril Capital, Hedosophia, and Senator Investment Group.
BlackSky had a net loss of $48 million on revenues of $22 million in 2020. The company’s net loss in 2019 was $60 million.
AST & Science (AST SpaceMobile)
Headquarters: Midland, Texas
Services: space-based cellular broadband network accessible from mobile phones
SPAC: New Providence Acquisition Corp.
Investment: $462 million
Initial Valuation: $1.4 billion
Key People: Abel Avellan (SpaceMobile), Alex Coleman (New Providence)
Listing: Nasdaq (ASTS)
Listing Date: Transaction expected to close Q1 2021
AST SpaceMobile will use the funding to create a low-latency, space-based platform that will provide high-speed, cellular broadband to areas around the world that currently lack such service.
“Universal broadband access has become a global necessity, and we are uniquely positioned to leverage our innovative technology solution and efficient business model to democratize broadband cellular access across the globe,” said Chairman and CEO Abel Avellan. “Building on the strong investor support we have received in the private markets, we are thrilled to partner with New Providence and transition AST SpaceMobile to a public company, which will solidify our financial profile as we continue to execute on our vision.”
Headquarters: Long Beach, Calif.
Services: small satellite launch provider
Investment to Date: ~ $1 billion
Key Virgin Orbit People: Richard Branson (founder), Dan Hart (CEO)
Branson has said the company has spent about $1 billion to get its first satellite payloads to orbit, which it achieved on the second flight of LauncherOne in January.
Last year, Virgin Orbit said it was looking to raise an additional $200 million to expand its operations. News recently broke that the company is also exploring whether to go public via a SPAC.
LauncherOne is carried aloft by a modified 747 and dropped over the ocean. The booster is capable of launching 500 kg into low Earth orbit and 300 kg into sun-synchronous orbit 500 km high.
Virgin Orbit is facing the same competitive challenges as Rocket Lab. Its competitive advantage is the ability to launch from any airport that can support a Boeing 747.