'Frothy' Space SPAC Pace Seen Slowing
Expect fewer deals for commercial space companies to have initial public offerings through purchase by a special purpose acquisition company because the recent SPAC IPO spate has seemingly met a lot of the investor demand, experts said in interviews this week.
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SPAC transactions haven't raised obvious issues before the FCC. Transfers of control of licenses to the SPACs for companies such as BlackSky Global, Spire and Planet Labs went through this year without opposition or conditions. The agency and companies didn't comment Thursday.
In such transactions, a SPAC is formed, raises money through an IPO and then buys a target company, and is then listed on a stock exchange. Two-hundred-one SPAC deals valued at $387.4 billion were announced in the first half of 2021, said financial data firm Refinitiv.
Space SPAC activity was driven by a variety of factors, including that SPACs routinely provide financial projections to potential investors, unlike IPOs, emailed Stanford University business professor Michael Klausner. "For a company whose value lies solely in future revenues, this is important." He said the number of SPACs chasing deals could mean advantageous terms for space companies, compared with venture capital or private equity investment. The incentives built into the SPAC structure are to give target companies" a good deal -- that is a high valuation, based on projections that could well be over-optimistic," he said. "This is obviously not good for SPAC shareholders, but it is good for targets."
SPACs "are persistently appealing" to companies as a route for going public because they pass most costs of going public on to investors, emailed Michael Ohlrogge, New York University assistant law professor and finance expert. Commercial space is one particularly attractive area for SPAC deals because "whatever is the hottest, most fad-prone sector of new companies at any time ... will be a good sector for SPAC mergers" because those are areas where investors are more likely to accept the high target valuations needed for the combination to go through, he said.
Space SPACs launched with Virgin Galactic going public in 2019, but it was late 2020/early 2021 when the market broadly discovered them as an option for average investors hoping for access to investing in early stage, pre-revenue companies, said partner Michael Mealling of the Starbridge venture capital fund focused on commercial space tech. He said until early this year, organizers were establishing the SPACs and finding a takeover target, "which seems a little bit irrational." Starting in summer, he said, such deals became more targeted and companies became more selective in letting investment banks know they would be interested -- under certain terms.
While the SPAC market "is still a little frothy, it's much more rational," Mealling said. "The speculation period ... is gone." He expects a smaller number in the future but at least one traditional IPO in the commercial space sector early next year.