In 2019, Richard Branson-supported rocket company, Virgin Galactic, became a publicly-traded company by merging with a special purpose acquisition company(SPAC). A SPAC is formed to raise money through an initial public offering(IPO). The money raised by public investors is used to finance the merger up to a certain period. If the merger is not finalized within the stipulated time, the funds are returned to the investors.

The Virgin Galactic blank check acquisition opened the door for many private companies who risked their way into the stock markets using the same tactic. According to European financial market data and infrastructure firm, Refinitiv, there were about eighty-seven SPAC transactions in 2019 valued at $390 million. This number rose to 163 in 2020, with the transactions valued at $965 million. The first two months of 2021 recorded seventy-two SPAC deals worth $2 billion.

The space company’s acquisition was initiated by Chamath Palihapitiya, acting board chairman at Virgin Galactic. Palihapitiya, a former Facebook executive acquired Virgin Galactic and made it a public traded company worth about $1.4 billion. Although the company has missed its annual revenue targets, it is early to judge, with the Covid-19 pandemic and economic distress.

The company is yet to fly customers to space. Its space tourism venture is still a strong performer in the stock market, with shares trading at $27 per share, valuing the company at $6.4 billion. A few days ago, Palihapitiya sold his stake in Virgin Galactic, raising over $200 million. The billionaire now wants to avert his interest in climate change technology.

Space ventures are a risky kind of business. Such companies depend on government projects such as military and remote sensing projects. Investors shy away from the risk, making SPAC transactions the best option for space startups. Furthermore, their success is most of the time-dependent on political influence such as elections.

According to research conducted at New York University and Stanford University, 50.4 % of the merger funds cover the costs. Compared to a 22% raised through a traditional IPO, SPAC transactions are good for startups because they pass along the blank check company shareholders’ costs. For instance, if a shareholder parted with $10 per share, he will claim $6.67 after a SPAC merger.

More space companies are embracing the SPAC mechanism to raise capital. BlackSky, a subsidiary of American aerospace firm, Spaceflight Industries, plans to go public through a SPAC merger valued at $1.5 billion. Similarly, Spire, a public utility firm, will become a public traded company this year valued at $1.6 billion.

AST SpaceMobile, a satellite-broadband company, announced a SPAC deal with New Providence valued at $1.8 billion in December last year. The American firm is partnering with Vodafone for a ‘business-to-business strategy to expand the reach of existing cellular networks. “The SPAC market was something that has changed a lot. It is a new way to finance disruptive and game-changing technologies,” said AST SpaceMobile’s founder, Abel Avellan.

https://portchronicle.com/

By Adam

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