Private Equity Invests in Low-Earth Satellites Eyeing Big Market

Investors are betting that low-to-Earth small satellites, or “smallsats,” in 10 years will be to government and business what IT is now—essential.

Denver firm York Space Systems is the latest satellite maker to illustrate that case. Private-equity firm AE Industrial Partners’ deal to buy a majority stake in York sprung in part from its “marquee wins” on the Defense Department’s new “Low-Earth Orbit” (LEO) satellite project.

The deal illustrates how the combination of US government and commercial demand is causing companies to focus on bigger groups of small satellites. They’re used to produce digital imagery, GPS and weather monitoring tech, as well as high-tech capabilities like missile tracking, environmental hazard monitoring, and internet connectivity in remote parts of the world.

Validation

Founded in 2012, York Space Systems foresaw the shift from giant bespoke satellites to constellations of smaller and more affordable satellites.

York Chairman Charles Beames said in an interview that it took years for industry and government to come around to their way of thinking. “The conventional wisdom was larger satellites—the bigger the satellite the better. And we had a different take on the whole thing,” he said. “It’s nice, the validation”

Get the week’s top news delivered directly to your inbox – Sign up for our newsletter

AEI Partner Kirk Konert said his company’s investment will help York accelerate its growth. “Over the next decade, both commercially and the government, there will be way too much demand for small satellite manufacturing and not enough supply,” he said in an interview. “We think York’s the best company to of help solve that.”

York’s satellite designs and focus on smallsats has positioned it well to respond to the demand. Beames said the company plans to invest in scaling up by streamlining supply chains and adding to its autonomous capabilities.

York and AEI expect to see demand growth from both the commercial and government sectors. On the government side, initiatives from the Defense Department, the Space Development Agency, the National Oceanic and Atmospheric Administration, and other agencies continue to emphasize the growing need for satellite operations.

In the next decade, up to 50,000 satellites could orbit the Earth, analysts project. The head of SDA said last year that he’d “completely” changed his mind about the usefulness of small satellites for military purposes. Satellite constellations can “seamlessly perform data communications, track hypersonic and cruise missiles, and provide enhanced battle management, navigation, ground support, and deterrence from space,” according to the SDA.

The last three fiscal years has seen York roughly doubling its unclassified contract awards from the government year over year, according to Bloomberg Government, going from $16.9 million in fiscal 2020, to $33.5 million the year after and $78.3 million in fiscal 2022.

Among major contract wins, York has landed awards with the SDA’s missile defense Transport Layer on Tranches 0 and 1.

“Proliferated LEO is one of the most important priorities for the DOD. For resiliency of communications, for hypersonic tracking—it’s a very important strategic thrust for the DOD for the threats that our nation faces,” Konert said. “York specifically develops and manufactures satellites for that area.”

On the commercial side, Beames said he expects Fortune 100 companies to lead a new wave of investment in space as capabilities and affordability improve. He pointed to John Deere’s recent solicitation for satellite services in agriculture.

Routine Use

“The satellite is going through what the computer went through in the 80’s, 90’s. The performance you get in a package, it doubles every two years but price stays the same or comes down,” he said. “My prediction is in three to five years, these Fortune 100 companies are going to look at the space part of the company a lot like the way they look at IT today. It’s becoming quite routine. That’s really the future.”

AEI specializes in aerospace, defense and government services, space, power and utility services, and specialty industrial markets. The company bought Boeing‘s venture capital arm, HorizonX, last year and now operates the venture platform with investment from Boeing.

The deal comes amid a flood of satellite mergers and acquisitions.

Earlier this week, L3Harris signed a $1.96 billion deal with Viasat to buy the California satellite company’s Tactical Data Link (TDL) product, also called Link 16, in a purchase expected to close next year.

Viasat continues to pursue its proposed $7.3 billion merger with UK satellite giant Inmarsat. And European satellite giants OneWeb and Eutelsat also announced plans for a $3.4 billion all-share merger this year.

BlackRock Private Equity Partners-managed funds and accounts also signed on to invest with AEI in the deal. Kirkland & Ellis advised AEI. Gibson, Dunn & Crutcher advised York on the transaction.

Source: Bloomberg Law

Can’t stop reading? Read more