Financial Analysts See Rise in Space Industry Mergers, Acquisitions, Stock Offerings

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COLORADO SPRINGS, Colo. — Merger and acquisition activity among space companies is increasing and a new round of initial public offerings may be on the horizon, according to financial analysts speaking April 13 at the Space Foundation’s National Space Symposium here.

During the last six months, there has been a significant increase in mergers and acquisitions because companies that did not want to sell at the bottom of the financial cycle are beginning to see the value of their stock going back up. “They want to cash in their chips before another downturn,” said Chris Quilty, senior vice president for equity research at Raymond James & Associates of St. Petersburg, Fla.

That opinion was seconded by Heidi Wood, managing director and senior equity analyst for aerospace, defense and defense electronics for Morgan Stanley of New York. Companies with strong balance sheets will be able to grow through acquisitions, she added.

As the stock market rebounds from the serious declines of the past two years, companies also are considering offering stock for the first time. “The window is open for initial public offerings,” Quilty said. “Companies will rush to get through the window before the market collapses again. I would not be surprised if certain private companies go public in the next six to 12 months.”

Those initial public offerings might be interesting to investors who are willing to consider risky bets because they see stock prices rising and they are eager to offset the dramatic declines of 2008 and 2009, Wood said.

If space companies want to appeal to a broader base of investors, however, including people who are less comfortable with risk, they should focus on steady quarterly returns, Wood said. Pension fund managers, for example, will only invest in businesses that consistently meet their projected returns for quarterly cash flow and earnings, she said.

The government could help space companies attract more investment by reforming the acquisition process and easing export controls, Quilty said. “The value of space companies is directly proportional to the uncertainty,” he said. “If you fix some of those issues, the valuation of some of those companies would go up. Their ability to raise capital and make investments is all held back in some manner by their government customer.”