Deals in the space business may slow down in the coming year

The fast pace of space company investment and acquisitions this year is uncertain about persisting next year, but bankers and investors remain bullish about the industry’s long-term growth potential. This year, a broader wave of mergers incorporating special-purpose acquisition corporations (SPACs), or “blank check” enterprises that merge with privately-owned companies, enabling those businesses to go public outside of the regular initial public offering procedure, has helped space entrepreneurs. Almost a dozen space firms have announced SPAC mergers in the previous year, each raising hundreds of millions of dollars.

Skepticism about the SPACs in general, on the other hand, could impede the pace of such transactions in the future. “There’s been a greater friction to go down the SPAC route than to collect privately since the beginning of the year,” Shireen Sharma, vice president of Goldman Sachs’ technology, media, and telecom division, said at a panel at the Satellite Innovation conference here October 5.

That includes the labor required to obtain a concurrent funding phase termed as private investment in public equity (PIPE) connected with many SPAC mergers in order to enhance the deal’s size beyond the money held by the SPAC itself, she said. Another factor is public market characteristics, such as the high percentage of redemptions seen in recent SPAC acquisitions, where shareholders requested their money back rather than holding shares in the amalgamated business.

“When we look at early-stage firms, a bunch of them are electing to stay on the private path rather than go down the SPAC path because they have a lot more control,” Sharma added. She acknowledged that SPACs aided in attracting “a lot of investor interest into the space market.”

“It’s almost like [SPACs] are butting into this [venture capital] field when it comes to absorbing risk that the public markets really shouldn’t have all of the time,” added Steven Jorgenson, who is the general partner and founder of Starbridge Venture Capital. Early-stage companies that would not normally consider going public are frequently involved in SPAC deals. “It appears that a few of these SPACs have been jumping the gun, and those businesses should remain private and backed by venture capitalists for a little longer.”

According to him, this view could diminish interest in SPAC mergers in the coming year, impacting overall sector investment. “I doubt next year would be as active as this year or even 2020 for people seeking to access the financial markets, but we’ll see.” It’s a bit of a mess out there.”

Mergers and acquisitions, or M&A, have also increased. Karl Schmidt, who is the managing director (M.D.) of KippsDeSanto & Co., a mergers and acquisitions group under the CapitalOne company that has brokered 8 space-related deals in the last 24 months, including Parsons’ acquisition of Braxton last year, said, “You’re so busy you’re turning away opportunities you’d rather not turn away because you can’t handle them.”

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