SPAC and the Space Industry [Sep/2021]
Special-Purpose Acquisition Companies (SPACs) are publicly traded and seek funding to merge or acquire private companies who are willing to go public as well. “SPACs are shell companies with no operations that raise capital through an initial public offering (IPO) and then use the proceeds to fund one or more mergers that form the basis of the ongoing public entity” (Bain & Company, 2021).
Half of the newly listed US companies of 2020 opted against traditional IPOs and instead utilized a SPAC to go public (Harvard Business Review, 2021). According to Thomson Reuters, the amount of SPAC capital raised has reached more than $150 billion in 2020, over four times the previous annual record, set in 2019. This unprecedented trend is supported by the fast way liquidity is received when using SPACs, especially for start-ups and innovation companies. Latest data from 2021 showed companies from the automobiles, software and aerospace sectors to be primarily targeted by SPACs.
The recent increase of public interest in the space industry, driven by highly publicised successes of private and public players, has amplified the sector’s attractiveness even further: investors are tempted to invest in the uncertain SPACs with the hope to catch an early ticket for the next (publicly traded) SpaceX success story. In 2020, $5.1 billion of funds have been raised through SPAC deals according to BryceTech.
However, the SPAC trend raises a lot of controversy, highlighting the substantial risk it might pose, notably to the promising and strategically key ecosystem of innovative European space start-ups.
Firstly, high supply of funds into a relatively small market bear the risk of creating a bubble. Besides short-term losses, the reputation of the space industry can be damaged if investors’ expectations of high returns are not met. In particular, revenue projections are allowed in the SPAC process, which raises both criticism and the risk of speculation. Secondly, the recent trend in SPACs displays a field of investment that highly benefits sponsors and potentially enables companies to receive stock market funding in a faster way than with traditional IPOs. The global SPACs investment funds can therefore tempt European start-ups to follow the attractive funding possibilities into foreign nations and pose a strategic risk for the European autonomy in critical innovation areas.
-Davide Vittori, Claudio Loporcaro, Prof. Antonio Messeni Petruzzelli (ESA_Lab@PoliBa), How Special Purpose Acquisition Companies Are Changing The Space Sector, June 2021 (accessible here)
-Bain & Company, SPACs: Tapping an Evolving Opportunity, March 2021
-Harvard Business Review, SPACs: What You Need to Know, 2021
-Thomson Reuters, Global SPAC deal volumes this year surpass total for 2020, March 2021
-BryceTech, Start-Up Space, 2021
-How the rocket business launched a wave of blank check acquisitions, March 2021
-[in French] Les Echos, Contentieux, raids de vendeurs à découvert… Les SPAC attaqués de toute part, August 2021
-[in French] Challenges, Rocket Lab, Virgin Orbit...Le spatial américain s'enflamme pour les SPAC, September 2021