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Space industry & SPACs

Space industry & SPACs

The space market is at a watershed moment as private and public investments continue to surge. Boutique research and advisory firm Quilty Analytics recorded $5.7 billion in investments for the first quarter of 2021, a 356% increase from $1.2 billion in the same period last year. Growing investor appetite in the public markets is mainly behind this eye-watering figure, bringing a paradigm shift for the industry.

Special purpose acquisition companies (SPACs), blank check firms that list on a public market before merging with businesses to fast-track investor exits, have been soaring in popularity in space and other industries. 

Even putting the SPAC trend aside, Quilty Analytics associate Jeff Thoben said space investment is “reaching near-manic levels” as private equity consolidator activity also ramps up in the market.

A low Earth orbit (LEO) broadband “comeback” was a notable theme for the first three months of this year, Thoben said, as operators SpaceX, Telesat and OneWeb all secured sizable funding rounds.

Space equity investment soared 152% year-on-year to $3.1 billion when excluding SPACs, according to Quilty Analytics data.

That is not an all-time high — the third quarter of 2020 reached $3.4 billion without any SPAC activity — but is still a notable height given that 2019 averaged around $934 million per quarter.

The data from Quilty Analytics comprises companies involved in satellite communications, space infrastructure, Earth observation, geospatial, and certain government services including global navigation satellite systems.

U.K.-based venture capital firm Seraphim Capital, which has a broader remit for what it counts as space technology, released data on April 29 showing record growth for the industry.

Private investments nearly doubled to $8.7 billion in the 12 months ending March 31 despite the COVID-19 pandemic, according to Seraphim Capital, compared with the same period the year before.

Seraphim Capital also said there are a record-breaking 11 SPAC deals this year for what it defines as space technology companies, which includes drone delivery, air taxis, and certain other aviation businesses.

These SPAC deals include Blade Urban Air Mobility, a helicopter travel provider developing an electric vertical aircraft for commutes.

Riding the investment wave 

More than $7 billion worth of equity funding is due to pour into the space SPACs that Seraphim Capital tracked for 2021, compared with $7.7 billion of private investment it recorded across more than 200 space companies for the whole of 2020.

There are six companies that most people would define as being in the space business with plans to complete a SPAC deal this year: Momentus, Astra, Spire, BlackSky, Rocket Lab and Redwire. 

Together, they plan to raise $2.8 billion. AST SpaceMobile’s SPAC deal completed in April, raising $460 million.

The other four SPAC deals included in Seraphim’s analysis are for electric vertical takeoff and landing (eVTOL) companies: Blade Urban Air Mobility, Archer Aviation, Joby Aviation and Lilium.

James Bruegger, Seraphim Capital’s chief investment officer, said: “We believe SpaceTech is at the nexus of mega-trends that will define societal change over forthcoming decades and has a unique role to play in addressing the world’s most pressing problems. 

“Radical advances in the Space sector mean a data and connectivity tsunami is about to transform the world as we know it, driving the next major paradigm shift in the global economy. Having so far largely weathered the worst of the impact of the downturn, the New Space economy is now primed for further strong growth in 2021 and beyond.” 

SPAC issues 

However, increasing scrutiny from the Securities and Exchange Commission (SEC), the U.S. financial regulator, is adding complexities and delays for space companies either in the SPAC process or looking to join the fray.

Changing accounting guidance for how these companies should treat warrants, which give investors the option to buy shares at specific prices in the future, has led to a decline in new SPAC deals across all sectors as the financial vehicle is thrown into uncertainty.

Bruegger told SpaceNews in an email that he does not see this situation lasting long.

“The changing accounting rules for warrants is certainly having an impact on the SPAC market at the moment, causing a bit of a logjam as lawyers and accountants are scrambling to revise their treatment in the SPAC’s accounts,” he said.

“However, having spoken to numerous different advisors and protagonists within the SPAC market, I think the consensus view is that these issues will be resolved in the near term. So the current situation is likely temporary and it would be unwise to draw negative conclusions about the future health of the SPAC market based on this one point alone. 

“We would anticipate further space-related SPAC mergers to be announced over the forthcoming months.”

Seraphim Capital is an investor in satellite operator Spire, which announced plans March 1 to raise $475 million by merging with SPAC NavSight in a deal they expect to close this summer. Seraphim also invested in AST Spacemobile before it went public.

2021 already looks set to be another record year for space technology venture investment, according to Seraphim Capital, after recording $2.7 billion in the first three months of the year, compared with $1.6 billion in the same period of 2020.

However, the venture capital firm said deal volume remains broadly flat, compared with the previous three months and the Seraphim Space Index it has been compiling since 2018 as a whole.

Seraphim Capital puts this down to the trend toward larger and later-stage deals in the maturing industry.

That roughly aligns with data from New York-based Space Capital, which also invests in early-stage ventures in addition to providing market intelligence.

Space Capital includes space-dependent application companies including ride-hailing service Uber in its analysis. It said investors poured $4.5 billion into the space companies it tracks in the first three months of 2021, marking the fourth consecutive quarter of declining investment after recording $5.5 billion in the second quarter of 2020.