To boldly go...how the Space sector has grown & M&A is set to follow
Investment in the Space sector has grown significantly in the last two years and M&A is set to follow.
This week Airbus and OneWeb announced the production of a constellation of over 600 (and ultimately more than 2,000) satellites to be launched between 2020 and 2025 at the cost of at least £1.7bn. The satellites will deliver broadband to every corner of the globe.
In order to achieve this Airbus are revolutionising how their satellites are made, but this launch is just the tip of a major wave of low cost satellite construction that has been allowed by new technologies rapidly reducing the cost of both manufacturing and launching satellites.
Elon Musk's SpaceX and Jeff Bezos' Blue Origin have leveraged private capital to significantly reduce the cost of launching satellites, particularly into low earth orbit, where primary uses for communications and earth observation have significant and growing commercial and profitable applications. Goldman Sachs in an April 2017 report estimate that launch costs have reduced by a factor of 10 in the last decade.
Satellite manufacturing has also been revolutionised by a group of independent and increasingly VC-backed commercial manufacturers building a range of smaller 'smallsat' and 'cubesat' satellites which can be as small as 10cm3 and are frequently deployed in arrays. The satellites are small and (comparatively) cheap so if something goes wrong with the satellite or its launch a program will not be significantly affected.
This low cost and lower risk new market structure has opened space to a huge new academic and commercial customer set. Estimates are that anywhere between 5,000 and 10,000 new satellites are already scheduled for launch, versus a total current in-orbit parc of circa. 1,500 today.
The military is now also increasingly looking to capitalise on commercial innovations to move away from high cost traditional formats where practical, with significant investment from a number of 'traditional' space primes.
Beyond the communications and earth observation markets, new space technology is also primed to open new markets in space tourism, in-orbit manufacturing and, in time, the mining of asteroids for rare and precious metals.
Unsurprisingly such growth in the Space sector is generating attention and the US venture capital market has led the way in M&A to date, with significant recent growth in investment: $1.2bn was invested in 2015 and $1.4bn in 2016. Prior to 2014 no more than $125m had been invested in any one year. Major private equity investors include Bessemer Ventures, RRE Ventures and the Space Angel Network, but SoftBank (OneWeb), Larry Page (Planetary Resources), Google and Fidelity (SpaceX) have all invested significant sums, as have investment arms of several 'non-space' corporates such as Coca-Cola.
Yet the traditional home of commercial space has been Europe and almost half of commercial launches in 2016 were in Europe. European M&A has been more limited to date but we are increasingly home to a broad community of new players across the supply chain, from internet satellite service providers, through cubesat manufacture to data services and even specialist insurance.
Arrowpoint Advisory has already advised on a number of transactions in the Space sector and satellite services space and we expect to see strong growth in Europe investment activity across the space eco-system in the next few years. If you are interested in discussing this sector and the opportunities in it please get in touch.