It’s hard to believe that two years ago there was basically no way for an investor to gain exposure to interstellar exploration. Now, thanks to the explosion of space SPACs (special purpose acquisition companies), there is a wealth of options.
Virgin Galactic (NYSE:SPCE) began the trend. In 2019, it announced that it was merging with Social Capital Hedosophia. Back then, SPACs were a still-unpopular route to the public markets, and one with a checkered history. SPCE stock in fact dropped below $8 not long after the merger close.
But as demand for, and supply of, SPACs exploded after the novel coronavirus pandemic arrived last year, space exploration companies jumped on board. Investors can pick and choose across various slices of the exploration market.
The big risk is whether the boom in space SPACs necessarily is a good thing. Increasingly, the SPAC trend as a whole looks a bit bubbly, and many pre- and post-merger stocks have pulled back sharply in recent weeks.
It’s worth remembering, too, that one of the few space SPACs done so far was the merger of Row 44 and Global Eagle Acquisition in 2013. Global Eagle went bankrupt last year, and shareholders were wiped out.
Given the risks involved in space exploration, there’s little doubt that at least one of the current space SPACs eventually will meet the same fate. For those investors willing to take on the risks, however, here are four space SPACs to consider:
- Genesis Park Acquisition (NYSE:GNPK)
- Vector Acquisition (NASDAQ:VACQ)
- Osprey Technology Acquisition (NYSE:SFTW)
- Holicity (NASDAQ:HOL)
Space SPACs: Genesis Park Acquisition (GNPK)
At the moment, GNPK stock manages to be both compelling and yet full of question marks.
The case for the stock seems almost airtight. Genesis Park is merging with Redwire, a self-described “space infrastructure company.” Redwire provides robotics, antennas, sensors, camera systems, and even full satellites to commercial and government customers.
Redwire’s history spans decades. It’s been built of late by aerospace-focused private-equity fund AE Industrial Partners precisely to be a company that serves the entire space market. Redwire estimates that market at $420 billion already, with growth to more than $2 trillion by 2040. As the company put it in its merger presentation this month, “when space wins, Redwire wins.”
And unlike so many other space SPACs — indeed many other SPACs across multiple sectors — Redwire already has an established business. The company estimates 2020 revenue at $119 million, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $13 million.
Both figures should grow nicely. Redwire expects 2025 revenue of $1.4 billion, with adjusted EBITDA of $250 million. With GNPK stock barely above the $10 merger price, it’s trading at less than 3x that latter figure.
This looks like huge growth in a huge market at a bargain price.
Of course, that itself raises a number of questions. With this kind of potential, why exactly is P-E fund AE giving up 43% ownership at this valuation? Redwire itself says it doesn’t need the SPAC’s cash to fund its growth.
Is five-year revenue growth of over 10x really worth just 3x 2025 EBITDA? Or is the multiple a sign that the growth targets are hugely optimistic? Going back further, why did the myriad businesses acquired by AE sell so cheap?
To some extent, GNPK stock almost seems too good to be true. Add to that the common concerns about SPAC projections, and some skepticism might be warranted. Of course, with GNPK below $11, a good deal of skepticism remains priced in.
Vector Acquisition (VACQ)
The shorthand case for VACQ stock was laid out by Barron’s in early March, after Vector Acquisition announced its merger with Rocket Lab. “Rocket Lab Is a Mini-SpaceX That Investors Can Buy Today,” the headline blared.
SpaceX, of course, was founded by Tesla (NASDAQ:TSLA) chief executive officer Elon Musk. And the two companies do look like direct competitors. Both are building out proprietary satellite fleets. Both offer launch services to third parties.
One notable difference is valuation. SpaceX reportedly raised capital in February at a $74 billion valuation. With VACQ stock below $12, Rocket Lab has a pro forma market capitalization of about $5.6 billion.
SpaceX is bigger, operates bigger vehicles, and likely benefits from the Musk halo. But given the massive discrepancy in valuations, VACQ stock looks like it might be worth a flyer itself.
Space SPACs: Osprey Technology Acquisition (SFTW)
Osprey Technology is merging with BlackSky, a provider of “real-time geospatial intelligence.” A fleet of satellites — which should grow from a current nine to 30 — monitors activity worldwide. BlackSky then layers on artificial intelligence and machine learning capabilities plus data analytics to provide customers with the highest-quality intelligence.
It’s an intriguing story. SFTW stock certainly looks cheap enough, at about 8x projected 2025 free cash flow.
Of course, like so many space SPACs, it’s those projections that raise some eyebrows. BlackSky is projecting exponential growth similar to that of Redwire, with revenue growing from $22 million in 2020 to $546 million in 2025.
The argument against SFTW is that the multiple to estimated cash flow in 2025 is not a sign of a “cheap” stock, but rather evidence that the market doesn’t trust that estimate. With competitor Spire raising its own capital via a SPAC merger with NavSight (NYSE:NSH), BlackSky won’t have the market to itself.
Again, all of the space SPACs are high risk and high reward. SFTW stock doesn’t look any different.
Holicity is merging with another rocket launch company, Astra. Astra was the third private company to reach space, following SpaceX and Rocket Lab. Its ambitions go much, much further.
By 2025, Astra aims to be launching rockets almost daily. Between a worldwide network of dedicated launchpads along with a portable launch system, the company can serve multiple customers in multiple markets.
There’s an obvious risk of failure. Astra’s niche alone has over 100 startups, according to industry estimates. Astra aims to get to near-daily launches by 2025, a timeline that leaves little or no room for error or delays.
But there are obviously huge rewards too, while a pro forma valuation under $2 billion suggests big upside if Astra hits its goals — or comes close. Like so many space SPACs, HOL stock is a “go big or go home” play.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.