Investors take long-term view of space industry amid near-term challenges
PARIS — Despite near-term headwinds in the economy and the markets, executives and investors remain bullish about the space industry’s long-term prospects.
A panel at the World Satellite Business Week conference here Sept. 12 acknowledged a decline in enthusiasm for space investment in the last year but argued the fundamentals of the industry remained strong.
“The demand side of space has not changed at all, even though there are a number of concerns about the direction of the economy,” said Peter Cannito, chairman and chief executive of Redwire. “The space industry is a port in the storm, and one of the reasons for this is the critical roles that governments play in providing a stable environment for space demand.”
The space industry attracted a wave of investment in recent years. More recently, though, there are warning signs in terms of the amount of capital raised and valuations of companies, including those that went public through mergers with special purpose acquisition companies, or SPACs.
The outsized attention space gets “makes it seem like it’s falling in terms of venture perhaps more than it is,” said Mike Palmer, managing director of Cerberus Capital Management. “I still think there’s a lot of interest.”
He acknowledged, though, that the SPAC market has dried up, and companies that have gone public using them have seen their stock prices plummet. “It all happened very fast, and probably a little too fast,” he acknowledged of the wave of space SPACs.
He suggested some of those companies may have gone public too early. “It’s hard, unless you have near-term catalysts in the public markets, to really maintain your footing,” he said, arguing they still had longer-term potential.
Redwire is among the companies that went public through a SPAC last year, which he said was part of a long-term play. “Space has become a very investible industry, if you’re looking at it over decades,” he said. “Over a year, over two years, what’s going to happen? I don’t know.”
A near-term decline in valuations, he argued, creates opportunities for a company like his, which has acquired several companies to create a “middle market” space infrastructure firm. “The fact that valuations have started to come down creates a real opportunity for a company like ours,” he said. “Redwire has positioned itself as an aggregator.”
Consolidation has also emerged among satellite operators, with Viasat planning to acquire Inmarsat and Eutelsat merging with OneWeb. There are rumors of still more potential deals, such as SES merging with Intelsat.
“Consolidation is good for the sector,” said Vaibhav Lohiya, managing director and global head of space technology at Deutsche Bank Securities. That can allow companies to reduce their capital expenditures, or capex, and shift investment into new capabilities like mobility. “Consolidation helps with reducing and rationalizing that capex, putting those dollars that you’re saving towards mobility, either organically or inorganically.”
A rumored SES-Intelsat merger would be a prime example of that, he said, allowing them to combine their large fleets of GEO communications satellites and reduce capital expenditures over the long term. A challenge for such a deal, though, is that Intelsat only recently emerged from Chapter 11 bankruptcy restructuring. “It’s not a very investment-grade capital structure.”
Consolidation, though, has ripple effects for other parts of the space industry, such as satellite manufacturers. “If two of these merge,” Lohiya said of satellite operators, “then it reduces the demand for new satellites.”
That concern applies throughout the industry. “If you have a supply chain that is geared towards a large number of vendors, you’re going to find fewer guys to talk to,” said Robert Wallin, managing director of the telecom and tech industry group at Natixis CIB.
Cannito emphasized a long-term view. “In terms of publicly investible space companies, we’re in the first inning of spring training.”