Connecting the Dots | Space after SPACs: Industry could be on the verge of new investment era

The SPAC investment trend injecting billions of dollars into early-stage space startups appears to have peaked, but in its wake could be larger capital infusions from institutional investors with deeper pockets.

Seven space companies plan to reap more than $3 billion in total later this year by merging with a SPAC — blank check firms that raise money on a public market before combining with businesses to fast-track investor exits.

However, more scrutiny over how SPACs operate, stemming from accounting guidance released by the SEC financial regulator April 12, have contributed to a sharp slowdown in new blank check companies.

The guidance means warrants that give investors the option to buy shares at specific prices in the future need to be classified as liabilities, instead of equity instruments, in a company’s accounting books.

It has led to a pullback that means the level of SPACs in space has probably peaked, after merger announcements in the industry averaged around one a month between October and March.

Even still, increasingly active private equity firms and intense low Earth orbit broadband activity in the market are pushing space into a new era of investments, according to boutique research and advisory firm Quilty Analytics.

Quilty Analytics associate Jeff Thoben said the space industry could be on the verge of more involvement from institutional investors — such as banks and pension funds that make sizable stock exchange investments — as it matures from the smaller venture capital days of the previous decade.

Private equity giant TPG, for instance, said June 2 it had poured $100 million into Climavision, the satellite and terrestrial radar weather services startup.

“With increasing institutional investor buy-in we could see a higher equity investment floor period over period, but we also wouldn’t be surprised to see the recent mania turn out to be the peak in the current economic cycle,” Thoben said. “Time will tell.”

BACK TO SPAC?

It’s also too soon to tell whether the once red-hot SPAC market will continue to run lukewarm.

Blank check firms have raised more than $100 billion so far this year — a record, according to financial data provider Refinitiv.

It counted 354 SPAC public listings in the first half of this year, compared with 258 for the whole of 2020.

But after the number of listings climbed every month this year to reach a record 116 in March, it fell sharply to just 18 for April, before increasing slightly to 26 for May.

The number of SPAC merger deals also plummeted, falling from a high of 54 in February to 24 and 29 for April and May, respectively.

It’s possible the uptick in Refinitiv’s figures for May is a sign that dealmakers are getting to grips with the new SPAC environment, kick-starting an investment engine that could accelerate more space businesses.

Quantum encryption startup Arqit’s SPAC merger, which aims to raise $400 million for launching two satellites in 2023, was announced May 12 — a month after the SEC’s guidance.

Space companies in the middle of their blank check mergers have also been successfully navigating the accounting changes.

Holicity, the SPAC merging with rocket startup Astra, said the SEC declared June 7 that a regulatory document it amended and refiled to reflect the new guidance was effective.

Astra Chief Executive Officer Chris Kemp said that puts it on course to start trading on the public market July 1, following shareholder approvals.

“Although we’ve seen a dramatic slowdown for new SPAC listings, there are still approximately 400 blank check companies on the hunt for a business combination,” Matt Toole, head of Refinitiv Deals Intelligence, told SpaceNews.

“In the face of a booming M&A market, creative deal-making and adapting to new regulatory schemes may be the key to the next era of SPAC deal making.”

This article originally appeared in the June 2021 issue of SpaceNews magazine.

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