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M&A Deals

Astra shoots for the stars with SPAC public offering

On February 1st 2021, private space enterprise Astra announced its merger with special purpose acquisition company (SPAC), Holicity. The deal, which values Astra at $2.1bn, aims to see the company go public in Q2 of 2021 and represents a raise of $500m in capital for the space enterprise.

The company

Astra was founded by entrepreneur Chris Kemp in collaboration with Adam London, a rocket scientist from MIT. Mr Kemp previously started and acted as CEO for grocery service Netran and holiday company Escapia which he later sold to Kroger and HomeAway respectively. Following the success of his early ventures Kemp joined NASA in 2006, quickly rising to CIO in 2007 where he formed close bonds with both Google and Microsoft. Through NASA, Kemp was involved with the Nebula project before being shut down by the space agency after determining that private sector options were proving more cost effective. This spurred Kemp and Adam London to found Astra in 2016, which aims to develop its own low-cost, high-frequency orbital rockets.

The goal of the company is eventually to be able to send hundreds of low-cost satellites into space for private and national clients. Demand for such launches could include satellites connecting “Internet of Things” devices, personal/private broadband or national security infrastructures. Astra aims to dominate the small-launch sector, happy to concede the large rocket launches to SpaceX and Virgin Galactic while focussing on a smaller, lower cost and bespoke service for clients.

Following a couple of unsuccessful launches of early rocket prototypes, Astra finally launched its Rocket 3.2 from its space port in Alaska. The latest rocket prototype performed well for several minutes before narrowly missing its target orbit. However, the progression from zero to near-low orbit within five years is still considered a remarkable achievement.

Context

Private space exploration has seen a considerable increase in attention from both a technology and investment standpoint over the last couple of decades. The industry is expected to triple by 2040 to almost $1tn according to analysis at Morgan Stanley, and the utilisation of SPACs are appearing as increasingly common vehicles to take such companies public.

Currently, the private space travel market is dominated by big names such as Elon Musk’s SpaceX, which is currently valued at $60bn, Richard Branson’s Virgin Galactic, which has seen its share price rocket by over 200% since September 2020, and Jeff Bezos of Amazon’s Blue Origin. In 2019, Richard Branson decided to take Virgin Galactic public through the blank check company VG Acquisition Corp and is now being closely followed by Astra. But why are the values of these private space enterprises rising so rapidly and what is causing this flurry of public offerings in the space sector?

Ark Invest, an Asset Management company based in New York specialises in the investment of disruptive technologies. Accompanying the launch of a fund dedicated specifically to space exploration, a prospectus published last month by Ark Invest outlines their outlook for the sector, commenting that “rocket and satellite cost declines are upending what once seemed a monopolistic and bureaucratic industry”. This summarises nicely the growing sentiment of recent decades, that has seen space travel and exploration transition from an inaccessible sector behind the closed doors of NASA and other national space agencies, to a rapidly growing private sector technology. Musk, Bezos and Branson have shown that government-scale investment and organisation are no longer a prerequisite for space programmes, now opening the door to smaller companies such as Astra to find opportunities in the plethora of possible commercial uses of space and low orbit technologies.

The deal

In order to raise capital to demonstrate the reliability of its core rocket technology, upon which bespoke add-ons such as satellites may be added, Astra raised $500m at the beginning of 2021. $300m of which came from funds already held in the trust account of the SPAC Holicity, with the remaining $200m from other investors, predominantly led by BlackRock at $10 per share. In doing so, the deal implied a pro-forma enterprise valuation of $2.1bn. Upon closure of the deal, Astra’s existing shareholders will hold ~78% of the remaining common stock and the founders will hold their interest through super-voting common stock. The super-voting common stock allows the founders to vote at (10:1) compared to the ordinary common stock. Disclosure of the deal on February 1st excited many of Holicity’s investors, with the news engendering an immediate increase in share price of 75%!

Astra has already demonstrated its revenue generating ability, with the securement of $150m of revenue from twelve clients. These include both private and government contracts securing future launches. Following the deal, Astra will become the first space-related stock to be traded on the NASDAQ exchange, are there more to follow?

The deal also heralds another example of the increasing popularity of SPACs for taking companies public. In contrast to traditional initial public offerings (IPOs), founder Chris Kemp praises the ability of SPACs to allow companies to raise capital and reach public markets at much quicker time scales.

Looking forward

Now that the door to private space travel has been opened by the likes of SpaceX, Virgin and Blue Origin; technology companies, entrepreneurs and investors are quickly trying to realise the potential that non-nationalised space programmes could offer. With the demand for an increasingly connected world for technologies such as the internet of things and ultrafast communication only on the cusp of realising their true potential, the public offerings of many more space ventures may be only around the corner. Many scientists and investors alike believe that humankind’s expansion outside of the confines of the earth are inevitable and poses a question of when, not if. Therefore, the ability to get in early, at the beginning of this new commercial space race, is appearing decidedly attractive to many investment funds. The example that Astra sets, is changing how investors see space travel. No longer are extra-terrestrial endeavours confined to the future, the distant future, but with satellite launches planned within the next twelve months, the investment opportunities in this sector may start to generate returns on much more manageable time horizons.  

Sources

https://astra.com/blog/astra-to-become-the-first-publicly-traded-space-launch-company-on-nasdaq-via-merger-with-holicity

https://www.ft.com/content/22fbd3da-0458-482e-8cf3-17432987e067

https://www.cnbc.com/2021/02/02/rocket-startup-astra-to-go-public-astr-via-spac-at-2point1b-valuation.html

https://www.bloomberg.com/news/articles/2021-02-02/astra-spac-deal-will-take-rocket-maker-public

https://www.morganstanley.com/ideas/investing-in-space

https://www.cnbc.com/2020/10/22/morgan-stanley-spacex-to-be-100-billion-company-due-to-starlink-starship.html

https://www.wsj.com/articles/richard-bransons-virgin-raises-480-million-with-spac-11601642288

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