SpaceX IPO could drive investor interest in other space companies

WASHINGTON — An investor in two space companies that went public in the past year said an upcoming SpaceX initial public offering could generate new investor interest in the sector while also triggering a wave of consolidation.

Speaking at the Miami Space Summit on Feb. 5, Kirk Konert, managing partner at AE Industrial Partners, said there was strong investor demand for Firefly Aerospace and York Space Systems, two companies in which his firm holds controlling stakes, ahead of their recent IPOs.

“The amount of demand we see from large institutional investors who want to play in this sector is enormous,” he said. Firefly’s IPO in August was 25 times oversubscribed, while York’s offering in January was 20 times oversubscribed, he said.

“It’s a food fight to get into those allocations because these investors see what is coming, what is happening in the space sector, and it’s really exciting,” Konert said.

He expects that interest to increase with a SpaceX IPO, which could take place as soon as this summer. The company is expected to raise tens of billions of dollars at a valuation exceeding $1.5 trillion.

“Every investor in the world will need to do work on the space sector because of how large that potential IPO is,” he said, including evaluating which other companies in the sector may be worth investing in. “I think that will be a great benefit to everyone in this room and every company you’re building.”

Konert predicted that could lead to more IPOs by space companies. “Now we have the pathways as an industry to take these best-in-class companies and have a public exit, which prior to five or six years ago did not exist,” he said.

He added that consolidation will be another path for companies not ready to go public. “Not every company is going to be a public company. Not every company will get to that scale,” he said. “But they will combine with others, and you’ll see these new companies form. It’s a new opportunity to access this enormous pool of capital that the space industry didn’t have access to before.”

Others at the conference offered differing perspectives on the impact of a SpaceX IPO.

“I think the SpaceX IPO is going to be very positive for this market,” Josephine Millward, a partner at OpAmp Capital, said during a Feb. 6 panel discussion. She cited growing interest in both space and defense technology companies. “It used to be very niche. Now it’s very mainstream, especially with SpaceX’s IPO.”

“SpaceX will drive the investment community into space,” said Glenn Pollack, managing director at Candlewood Partners, during the same panel. That includes lenders, he said, who will increasingly view space “as just another industrial business.”

Tyler Letarte, a principal at AE Industrial Partners, said the IPO could also have drawbacks for smaller companies.

The investor focus on SpaceX over the next several months, he argued, “means they’re going to spend less time focusing on the thousands of other space companies trying to go public, trying to raise capital.”

“It’s going to suck a lot of attention,” Letarte said. “That’s where I’d say it’s a negative for some of the smaller players out there. But if it’s a success, you’ll all of a sudden have a majority of the institutional world investing in space.”

Going public also brings increased scrutiny and volatility, Konert said in his remarks.

“Then you go public, and then you get to see your scorecard every day,” he said. “You get to see the volatility of who’s buying, who’s selling, what your stock price is doing. And obviously, you get the calls from your parents and your friends: ‘What happened today?’”

Shares of Firefly Aerospace, which went public last August at $45, closed Feb. 6 at $23.88. Shares of York Space Systems, which went public Jan. 29 at $34, closed Feb. 6 at $25.44.

Rocketdyne plans

Konert also discussed another recent deal involving AE Industrial Partners. On Jan. 5, the firm announced it would acquire a majority stake in the space propulsion business of L3Harris Technologies in a deal with an enterprise value of $845 million.

That business will be spun off as Rocketdyne, with AE Industrial Partners owning 60% and L3Harris retaining 40%. The new company will operate most of the launch vehicle and spacecraft propulsion systems previously held by L3Harris, except for the RS-25 engine, which L3Harris will keep.

“The Rocketdyne example is a really interesting one,” Konert said. “We have a defense budget that’s a trillion dollars, and there’s been little to no disruption to the defense market for 30 years.”

With new entrants promising to disrupt that market, he said, legacy defense contractors are exploring ways to adapt to the Pentagon’s growing interest in faster and less expensive programs.

There was not a lot of focus on rocket and spacecraft engines inside of L3Harris, he argued. “They have some great heritage technology and some great new technology. We think we can help them scale that, invest in some new technology, take advantage of these new things.”

He said the deal could serve as a model for future transactions involving major defense contractors. “We can carve out these interesting businesses, unlock the value and growth, and they can participate alongside us in a new way.”