TAMPA, Fla. — Three space companies that went public two years ago are seeking ways to build credibility with large institutional investors that have started dipping toes into the deflated market.
Launch vehicle and spacecraft developer Rocket Lab, space technology provider Redwire, and Earth observation operator BlackSky started trading shares within weeks of each other after their 2021 merger with a special purpose acquisition company (SPAC), a financial tool offering a fast-track to stock markets.
Like other space companies that merged with a SPAC, which requires less due diligence than a conventional IPO, their shares have fallen from a $10 listing price as investors pull back from the market.
Shares closed Sept. 14 at $5.26 for Rocket Lab, $4.12 for Redwire, and $1.30 for BlackSky.
Chief financial officers from these companies joined Noel Rimalovski, managing partner at investment bank GH Partners, on a World Satellite Business Week panel in Paris Sept. 12 to discuss the market.
Rocket Lab raised $777 million in capital from its SPAC deal to help fund its new Neutron medium-class rocket.
Adam Spice, the company’s CFO, said during the panel that it could have probably only raised as much as $300 million via the traditional IPO route.
“We knew that wasn’t going to be enough,” Spice said.
“We also knew there were going to be downsides of going through … this novel transaction structure” with a SPAC.
While Redwire’s Jonathan Baliff partly attributed the downturn to high interest rates that have generally drained growth capital, he also pointed to how revenue promises made by many of these companies have also been unfulfilled.
“But that doesn’t mean these aren’t good investments,” Baliff said. “It just means that there’s a lot of rethinking [required] from the investor standpoint.”
Spice said post-SPAC space companies are dealing with an equity market that is poorly educated about the space industry and the companies involved.
“You’ve got a tremendous, I would say, bias by retail investors,” he added.
However, he said institutional investors are now increasingly turning their attention to the market.
“I think they were trying to time at the bottom of the market,” Spice continued, and “we’ll see how accurate they are.”
According to Spice, it’s now on space companies to educate the institutional investor community to ensure they have the information they need to make informed decisions.
“What we can do most is focus on our internal, focus on our execution,” BlackSky’s Henry Dubois said, “and then get the story out.”
Ultimately, Dubois said successful companies will be those that can explain to the market how their business models will get them to profitability.
“I think profitability is where people are going to start focusing and honing in on,” he said.
The new funding landscape
Rimalovski of GH Partners said investors are now focusing much more on business fundamentals, track record, and the size of a company’s backlog of future revenues.
This means transactions are taking longer to complete as investors conduct more due diligence than they did two years ago.
“The era of … things are getting worse, please send more money — that’s over,” he added.
Redwire’s Baliff also highlighted current confusion among investors over which companies will survive the downturn and those with business models that work.
Generally, if a company listed at $10 and is now trading at $5, “you’re kind of viewed as a survivor,” he said, “you’re going to make it. If you’re below $1 … it’s teetering on investors being able to just give you any capital, and between one and five, you know, it just depends on the day.”
Baliff said he expects equity funds will opt to hold onto cash for the rest of the year to see how the market shakes out, and then deploy funds they have been sitting on in 2024.