Private-equity firms start exploring the space sector

Sep 22, 2021 | News

Private equity firms are ramping up investment in the booming space sector, with some aiming to plant flags in an industry where buyout shops haven’t previously been major players.

 This year has seen by far the most deal activity ever by private equity in the space sector, according to PitchBook Data Inc., a company that tracks private-equity and venture-capital investment. Through Sept. 16, buyout firms invested about $1.22 billion in U.S.-based space companies, exceeding the second-highest annual sum ever by 59% in less than a full year, according to PitchBook data.

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The total is more striking for the speed with which private equity has increased its investment in the sector—PitchBook recorded only $85 million in private-equity investment in the sector between 2018 and 2020—than for the scale. Firms have made just 10 deals in the sector this year, and the $1.22 billion in space investments is a fraction of overall private-equity deal volume, which stood at about $544 billion in mid-June.

For all the dynamic growth of the space sector, it is still too young, and most companies still too small, to absorb large amounts of private-equity capital, according to investors. Typically, private-equity firms aim to buy, restructure and then sell mature companies, while venture-capital investors place bets on fledgling businesses with unproven technology.

In the space sector, “it’s prime time for venture. For private equity, it will be in maybe a few short years,” said James Mertz, a managing partner at venture-capital firm SpaceFund.

The explosion of interest in the space sector over recent years has been fueled by headline-making launches by billionaire-led companies: Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin and Richard Branson’s Virgin Galactic. At the same time, new miniaturization technologies have reduced the cost of making and deploying satellites, causing a flurry of interest in the possibilities for satellite technology.

The new high-profile space companies have reignited interest in the sector, according to Chad Anderson, managing partner at Space Capital, a venture-capital investment firm.

“We kind of had stagnation in space for a long time before these companies came along,” he said. “Now there is a lot of competition.”

Along with growth in commercial investment, the U.S. government—long the main customer for many space-focused companies—has signaled a new commitment through the establishment in 2019 of the U.S. Space Force, a new branch of the military. The federal government has also been funding space-related startups, in part through the Defense Department.

A recently announced private-equity deal related to military involvement in space is ATL Partners’ investment in Geost LLC, which designs sensors used in space missions.

Source: Mint

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