Doing Deals in a Pandemic
We’ve covered a wide range of topics recently, from an early assessment of COVID-19’s impact on the Satellite & Space sector to OneWeb’s Chapter 11 filing. We also recently published an analysis on how a pandemic-induced recession will impact the Satellite & Space venture-backed landscape (“Venture Space”). But what about M&A, private equity/venture, and public equity activity?
It turns out, despite the severity of the crisis, Satellite & Space sector activity in Q1 2020 (“1Q20”) was actually above average across both M&A and private equity/venture capital. This good news comes with a crucial asterisk, however, as the pandemic’s impact on the economy (and financial markets) did not become apparent until the middle of March. In our 1Q2020 Quarterly Market Monitor, we counted 17 M&A transactions, 29 private equity/venture rounds, and two public equity financings within the Satellite & Space ecosystem during 1Q2020, which is roughly flat from the prior quarter though higher than the recent norm – even with ~2 weeks of the quarter lost as a result of the pandemic.
This strong 1Q2020 showing does not imply that transactional activity will continue at pre-crisis levels, however.
Satellite & Space M&A Activity
1Q2020 M&A deal activity included $2.5 billion of disclosed deal value ($0.6 billion excluding BAE’s outsized acquisition of Collins’ military GPS business which was driven by anti-trust requirements from Raytheon’s merger with United Technologies). The only M&A transactions announced subsequent to the “global shutdown” were Rocket Labs’ small acquisition of Sinclair Interplanetary and exactEarth’s divestiture of select Gen-1 AIS satellites and ground infrastructure to Myriota. M&A grinded to a near-halt during the peak of the fear cycle. In April, most sellers put sell-side processes on hold until greater clarity returns. Meanwhile, many buyers have retreated from M&A altogether, though a few are being opportunistic. The duration of the current deal freeze will depend on the evolution of the COVID-19 pandemic. That said, we currently anticipate a greater number of buyers will “come out of hiding” by sometime in early summer, though at reduced activity levels, driving (some) resumption of deal activity in 3Q2020.
Satellite & Space Private Equity Activity
On the equity financing side, 1Q2020 was a frantic quarter, with $1.1 billion of disclosed transaction value and multiple > $100m financings announced, including SpaceX, Kinéis, AST, Skylo, and Astra (the latter having raised such capital over a period of time). As with M&A, we understand that many deals were put on hold in March, with primarily those transactions that were in very late deal stages making it to the finish line. Private equity activity will evolve in lockstep to M&A, though venture-stage investment activity will develop independently (as fully analyzed in our recent Venture Space report).
Satellite & Space Public Equity Activity
The public equity capital markets are currently closed to most issuers, including those in the Satellite & Space domain. As long as there is very high macro uncertainty, there will be exceptional public equity market volatility, serving as a brake on almost all public equity offering activity.
It’s Closing Time
Transaction activity was exceptionally high in late 2019/early 2020, not only in Satellite & Space but across many industry sectors. It will be a long time before we return to those frothy deal activity (and valuation) levels. In the mean time, buckle up for a reset after the current deal freeze subsides.
Near-term buyer opportunism will gradually make way to a “new normal.” We expect much of the next phase of Satellite & Space M&A activity to be fueled by the larger strategic players that are seeking to enhance their technology position, customer access, and/or growth prospects. Meanwhile, while the bar will undoubtedly be higher than before (and the universe of investors somewhat narrower), capital will return to financing the most promising startups and growth-stage companies.
The onset of this current phase of the business cycle feels particularly vicious given the record speed and intense depth with which it arrived. However, we can confidently predict long-term health for the Satellite & Space industry, and rest assured that the industry’s growth and innovation will continue, ultimately resting on a stronger foundation than ever before.
If you’re interested in a more granular analysis on ongoing M&A, private equity/venture, and public equity activity, including deal activity by sector (Satcom/Enablement/EO & Geospatial/Other) please subscribe to our complementary monthly newsletter or contact info@quiltyanalytics.com to discuss premium subscription options including our Quarterly Market Monitor deep dive.