SPACs (special purpose acquisition companies) are becoming an increasingly important pillar for capex-heavy newspace. Startup Astra’s fast-track IPO is set to make it the first publicly traded space launch company – an accolade that had been anticipated for SpaceX before the SPAC boom.

But as ‘blank cheque’ firms help open newspace up to public markets, a social media-driven retail investor surge poses far-reaching questions for stocks.

Another SPAC deal

Astra is merging with SPAC Holicity in a deal that values it at US$2.1bn and raises nearly US$500m in cash.

Holicity was founded by Craig McCaw, credited for creating the first US wireless network that he sold to help create AT&T (NYSE:T).

The proceeds include up to US$300m of cash held in a Holicity trust account, as well as about US$200m raised from selling shares to funds and accounts managed by BlackRock.

Existing Astra shareholders are set to hold about 78% of the combined company once the transaction closes, which they expect in Q2 2021 following regulatory approvals. McCaw, whose connectivity ventures also include the ill-fated LEO broadband venture Teledesic, is expected to join Astra’s board.

Astra said it will use the funds to ramp up operations as it aims to begin monthly satellite launches before 2022.

Satellite launch transformation

Funding and technical issues helped push Teledesic into bankruptcy around the turn of the century, along with the first iterations of LEO players Iridium Communications (NASDAQ:IRDM) and Globalstar (NASDAQ:GSAT).

However, in recent years technological and cost advances – and growing venture capital support – have helped put LEO and small satellites back on the agenda.

To help meet the insatiable thirst for connectivity and data, a vast array of smallsat ventures have been created to transform markets from broadband to Earth observation, significantly inflating demand for satellite launch capacity that has in turn spawned a multitude of launch startups.

However, as with the operators they plan to serve, launchers like Astra are in a juggling act to meet demand as they tackle high capex requirements and long development times to commercial services.

Most analysts believe the smallsat launch market is too crowded, and the sector faced many viability and sustainability questions long before COVID-19 disrupted financial markets and supply chains.

Many smallsat ventures went into hibernation as the pandemic hit. They began remerging towards the end of 2020, under pressure from VC investors to get back in the race.

Companies that offer ‘ride share’ services have been taking advantage of the uncertainty.

2021 will be a key year for understanding whether smallsat launchers will be able to carve out a niche, or take market share from established players with ride share services or their own dedicated rockets.

Astra has yet to reach orbit with its Rocket 3.2 vehicle, although the startup said it came close with its latest test in December.

However, the company expects to use its SPAC deal to ramp up to daily launches by 2025.

CFO Kelyn Brannon said the deal will fully fund the venture to profitability, and the group has posted more than 10 customers and 50 launches in a backlog with over US$150m in contracted revenue.

It expects to be generating US$1.5bn in revenue in 2025, with US$314m coming from a modular spacecraft platform it is also developing.

Alternative funding

Astra is joining a growing list of space-related startups that are turning to SPACs to vault over funding gaps.

Sir Richard Branson’s space tourism venture Virgin Galactic (NYSE:SPCE) paved the way in 2019, followed in 2020 by Momentus (NASDAQ:MNTS), which is building a business facilitating ‘last-mile’ deliveries of already launched satellites.

AST & Science (NASDAQ:NPA) soon joined the fray to raise US$540m for a network that could provide space-based connectively directly to standard handsets.

Some analysts have pointed to the stellar rise of SPACs in an era of cheap financing, generally, as a sign that markets have been taking on too much speculation.

Others believe they are unlikely a short-term fad because of their ability to combine traditional private M&A and IPO elements, providing a great fit for companies that need a curated process to raise funds.

Brett Shawn, SVP and assistant general counsel at private equity firm Warburg Pincus, told a recent Transaction Advisors virtual conference: “I think it’s a natural evolution of a … capital raising, private M&A construct that we’ve seen proliferating for a while now.”

Market shifts?

The rise in public newspace ventures could be seen as a sign of maturation for the sector as it increasingly goes mainstream.

Companies like SpaceX have also been helping push satellite beyond its niche market perception. It has been busy deploying a network called Starlink, a constellation of LEO satellites for applications including consumer broadband.

SpaceX, which has been launching its own broadband satellites, will probably not go public for several years, founder Elon Musk tweeted in September 2020.

Meanwhile, a flood of amateur traders coordinating on social media has been sending shockwaves through the markets, inflating the value of several stocks that some hedge funds have heavily shorted.

The ongoing situation is attracting scrutiny from lawmakers and has prompted trading app Robinhood and others to restrict trading.

Analysts and investors are keeping a close eye on the potential for long-term ramifications as the online movement helps drive volatility.

Holicity hired Deutsche Bank as lead financial adviser and capital markets adviser for the Astra deal. BofA Securities acted as lead placement agent on the PIPE, and is a financial adviser and capital markets adviser to Holicity.

PJT Partners acted as sole financial adviser for Astra, and also as a placement agent on the PIPE.

Holicity mandated Winston & Strawn for legal advice, while Astra picked Ropes & Gray.