Space investors predict more acquisitions to combat hiring challenges



COLORADO SPRINGS — Hiring challenges in the space industry will lead to more acquisitions as way for companies to access talent and expand their workforces, investors said during an April 4 space finance session at the 37th Space Symposium here.

Acquiring companies is a “quick shortcut” for filling job openings that risk slowing down projects across the industry, said Jon Lusczakoski, an executive at AE Industrial Partners. “Especially if you’re focused on the classified space or want to get into the classified space,” Lusczakoski said.

The time it takes to get an individual security clearance is “getting longer and longer,” according to Lusczakoski. This makes small companies with classified-level engineers “a hot commodity to a company that’s trying to break into that [market], and can’t afford a two-year timeline to get their team up to that” level.


Wells Fargo investment banker Paul Croci said smaller companies that win big contracts “often don’t have the people to scale fast enough” to deliver on time. Workforce shortages could push the small companies to partner with a larger contractor or be acquired by a bigger company with more resources.

Consolidation on the way

AE Industrial Partners created space technology company Redwire in June 2020 by combining two space technology companies it had acquired. After absorbing more space firms into Redwire through acquisitions, the private equity firm took the group public in September 2021 by merging with a special purpose acquisition company (SPAC).

The industry is only in the “early innings” of a consolidation wave, according to Lusczakoski. He said there are a lot of mid-tier companies that “flatline” after reaching $10-20 million revenue. “They’ve kind of lost their innovation, because now the founder or upper management is worried about next year’s taxes, the HR handbook, making sure monthly financials are closing out [and] getting payroll for this week,” he said. 

Lusczakoski expects more companies like Redwire and fellow consolidator Voyager Space to “pop up over the next couple of years” to snap up these companies, enabling them to pool administrative tasks to reduce overhead.

More institutional financing will also be available as the space industry’s operational costs become more palatable for these investors, said Patrick Judge, managing director of Camber Road Partners, a provider of non-dilutive financing. “I think you’ll see more capital allocation to space within general funds,” Judge said, and also “more specifically targeted funds for space.”

He said that operational costs are falling partly due to a flood in early-stage investments.

Panel moderator Ronald Lau, senior vice president of corporate development and capital programs at state development agency Space Florida, estimated that 328 space companies received $17 billion in venture funding combined in 2021.

Venture capitalists, however, have more appetite for risk than investment banks, private equity firms and other large institutional sources of capital with more conservative investment criteria. “Top of that list is revenue,” Croci said, and second is cashflow.

“Investors that are serious public investors are really going to struggle if you don’t have revenue and EBITDA [earnings before interest, taxes, depreciation, and amortization],” he said.

“The next best thing after that is contracts. If you don’t have revenue, or EBITDA, you’ve got to have contracts, and ideally hundreds of millions if not billions coming from … highly-rated customers.”

Beyond those, institutional investors will also be looking for a team with a broad range of expertise, including employees that have worked at maturer companies, or involved in transitioning a startup to a going concern.

“And then technology,” he added, which “can’t be an idea on a napkin” and ideally needs an operational prototype with the intellectual property that backs it up, and a clear regulatory path toward certification.

“If you fall down in any one of those areas … it’s not necessarily catastrophic,” he said, “but certainly those are the things that the crossover investors and the public institutions are going to want to see before they’ll put large blocks of capital to work.”



Source link

Leave a Reply

%d bloggers like this: