WASHINGTON — Space companies used mergers with special purpose acquisition corporations, or SPACs, to grow their businesses in 2021, but many shareholders were left underwater at the end of the year.
Of nine space companies that went public through SPAC mergers in 2021, all but one finished 2021 with shares trading below the price of when the mergers closed. Only Rocket Lab finished the year with its shares trading above the price when its merger closed, up six percent since late August.
The drop in share price was significant in many cases. BlackSky, Momentus and Spire all closed the year down more than 60 percent from when they started trading as public companies, with Spire down nearly two-thirds. Even Virgin Orbit, which started trading publicly Dec. 30, ended the year down 13 percent after a sharp decline Dec. 31.
There was no single reason for the declines in these companies. Planet, which started trading Dec. 8, fell sharply after disclosing in a quarterly earnings call Dec. 13 that several thrusters on one of its SkySat high-resolution imaging satellites had malfunctioned, reducing its lifetime. Shares in Redwire Space have been steadily dropping since early November, when the company delayed the release of quarterly financial results because of what it described as “potential accounting issues at a business subunit” that it has yet to fully explain or resolve.
The lackluster performance of these publicly traded companies comes as companies have recently struggled to use SPACs to raise large sums of capital. Virgin Orbit raised less than half of the $483 million originally projected from its merger with the SPAC NextGen Acquisition Corp. II after a high rate of redemptions from shareholders in the SPAC. While the SPAC was originally projected to provide up to $383 million, it instead contributed only $68 million of the $228 million raised as shareholders in the SPAC instead requested their money back.
Satellogic, which announced a SPAC deal in July, has been struggling to close its merger despite optimism voiced by company executives last month. CF Acquisition Corp. V, the SPAC merging with Satellogic, delayed a shareholder vote on the deal for a third time Dec. 30, saying it needed more time for negotiations with a potential investor for additional financing, potentially as a hedge against high redemption rates from SPAC shareholders. That vote has been rescheduled for Jan. 24.
That has followed an overall drop interest in SPAC deals from early 2021. “In 2021, the first quarter was extremely hot,” said Dominique Cahu, co-head of Europe, Middle East and Africa media and communications at Morgan Stanley, during a panel discussion at World Satellite Business Week Dec. 13.
As the year progressed, though, there was less tolerance for risk. “Clearly, the threshold has been increasing throughout the year, with a focus on profit, unit economics and the durability of the distinctive barriers that this company or that company had created,” he said. “That’s a normal phenomenon that we have seen in other capital markets. It’s just been more acute and more pronounced this year simply because of the volume that went into the market.”
Another panelist downplayed some of the concerns about SPACs, such as high redemption rates. “Any landing you can walk away from is a good landing,” said James Murray of PJT Partners. “There’s an enormous amount of focus placed on redemptions, and I’m just not sure it matters that much.”
What matters, he argued, is that companies are able to raise money at high valuations. “These high redemption scenarios are still, in a lot of cases, raising $150-plus million,” he said.
Murray later projected continued interest in SPACs, particularly in communications companies. “I believe that bigger deals are still to come. I think that some of these large constellations are going to go public, and I’m excited to see what that world looks like,” he said. “I think that the current 2020-2021 class of SPACs are off to great things, and there are a lot more companies waiting in the wings that will take advantage of this type of structure over the next 12 months.”