To Wall Street and beyond: A look at the new space race backed by SPACs

Last Sunday the world got a feel for what space tourism has to offer, but the assets flowing into the development of commercial space travel and the space industry broadly signal more intriguing developments are ready for the launchpad. Virgin Galactic gets credit for kicking off this trend. It became a publicly traded company through a SPAC in 2019, when it merged with Social Capital Hedosophia, a Cayman Islands shell. Its counterpart in team Bezos, Blue Origins, on the other hand, remains a privately held company, and though there has been talk of an IPO at some point over the next two years, there has been nothing more specific. Meanwhile, Elon Musk is also very much in the picture. He has no plans to take SpaceX public, but he has tweeted that he plans a public listing for its satellite-launching subsidiary, Starlink. On July 11, Richard Branson took a one-hour flight on board the VSS Unity, a winged and rocket-powered plane created by his company, Virgin Galactic. The flight reached a point 53 miles from the surface of the earth. (The US government has generally defined “space” to begin at 50 miles, through there is a more demanding definition, known as the Karman line, 62 miles, or 100 kilometers.) On Tuesday, July 20, another billionaire entrepreneur, Jeff Bezos, will fly on the New Shephard, a traditionally configured rocket (no wings, a vertical take-off) that has been created by his start-up, Blue Origin. Although both billionaires deny that there is any competition, Bezos will cross the Karman line and his allies have gently put forward their view that the sub-Karman altitude of Branson’s flight requires an asterisk in the space-race record books. Behind this recent spectacle of two billionaires racing each other into space, and then arguing over where exactly the border between the atmosphere of Earth and “space” is, there stands one of the central recent developments in finance, the use of reverse mergers to provide a private firm with a relatively quick public listing. The popular reverse mergers are achieved through special purpose acquisition vehicles (SPACs), which raise money through an initial public offering, then offer themselves to be the shell that buys a promising private start-up, for example a rocket manufacturer or satellite software developer. This investment trend has come about in part because an IPO has become a difficult and risky undertaking, and there are many firms, including many of those in the ‘space’ business broadly construed, that want to avoid that process, by finding a backdoor into the public markets. More broadly, the billionaires’ space race, whether about ego or investor profits or the usual combination, has been made possible by the broader space-industry ecosystem, which is very much fueled by SPACs. There is some question whether the trend -- of SPACs and especially of Space SPACs -- has peaked. On the one hand, blank check firms have raised more than $100 billion in the first half of 2021, a new record. Refinitiv says there have been 354 SPAC public listings. On the other hand, looking at the numbers on a month-by-month basis, there has been some slow down. On the third hand, the slowdown could be merely a passing re-adjustment to a recent Securities and Exchange Commission accounting guidance. If the market has made the necessary adjustments, it may in effect be ready to say, “let the good times roll again!” Specifically within space-oriented SPACs there has been real growth with at least 11 SPACs this year after only six space SPACs even existing at the end of 2020, according to a Seraphim Capital report published earlier this year. More SPACs in the sector may have yet to take-off. On May 12, Arqit announced a SPAC merger raising $400 million. That was a month after the SEC’s accounting guidance, so it may prove to be the starting gun for round two. Arqit, the first space industry unicorn to emerge in the U.K., plans on using the money to launch two satellites in 2023 -- these are satellites that will support what it calls the QuantumCloud, designed to protect the internet against the threats that may be posed to it by quantum computers, when the latter become tools of “bad actors.”

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To Wall Street and beyond: A look at the new space race backed by SPACs

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Christopher Faille

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