MaxQ isn’t a pleasant place to be. During ascent, MaxQ is the point of maximum dynamic pressure on a launch vehicle; the point at which it is most likely to fail, and should it fail, it will likely do so spectacularly. If you watch most any spacecraft launch and listen to what’s being said on the loop, you’ll hear mission control breathe a sigh of relief once the vehicle is through MaxQ.
The current crop of space SPACs have encountered just such a moment recently. Born in the growth-is-good environment of 2020, the SPAC asset class hit the wall
when a number of simultaneous pressures were brought to bear. One, the market decided that value was the new growth
. And two, the SEC decided to pick a fight with the warrant structures of many SPACs. It wasn’t really a fight with the warrants per se; it was just a method by which they intended to slow the creation and listing of too many SPACs. In short, the SEC seemingly decided, things be cray-cray right now and need to calm down, so we shall pull on a thread that is easy to unpick and see what happens.
Now, in recent days it has become apparent that as predicted by, er, everyone, growth is the new value
. In addition, most space SPACs we follow have now re-filed their 10-Ks or 10-Qs with the SEC, amending the accounting treatment of the warrants as per the SEC’s requirements. At the SEC’s behest these SPACs have now told warrantholders that their warrants might look more like debt than equity. And that they had messed up in their accounting treatment and risk management procedures. The wording is so begrudging in these restatements you can whilst reading them more or less hear the SPAC lawyers and the SEC lawyers arguing for days about every little word.
And you know what happened when those restated accounts came out? Nothing. Nobody blinked. After a whole class of companies said they had messed up their accounting so badly that they had to restate their SEC filings. But this lack of reaction is likely because most of the space SPAC names had sold off already to around the magical $10/share number already, as institutional buyers had suddenly elected to inspect their own shoes with great interest whilst the SEC shenanigans proceeded.
So right now, the risk-loving buyer can pick up a whole bunch of space SPACs, many of whom are close to completing their intended mergers with the underlying operating companies, for a price that in 2020 you could have obtained only before the names of the planned merger candidates were announced. These stocks are still highly speculative - nothing has changed there. If you own securities in a SPAC vehicle, it remains the case that you own a small piece of a company buying, usually, a small piece of another company, usually at a growth-is-good kind of multiple. If you want fit-and-forget in space investing, buy something boring like Iridium ($IRDM) or Northrop Grumman ($NOC). But for a little sizzle? Couple of these SPACs do stand out to us.
Now, the thing with early-stage investing, VC or growth equity investing - and make no mistake, that’s what most of these space SPAC opportunities are - is that dress it up how you will, the method adopted by even the most successful VCs and growth equity folks is, grab a big bag of somebody else’s money and share it out around a group of hopefuls. Then at each company’s premises hold collective hope sessions known formally as “board meetings” for a few years to see what happens. Spray and pray be the order of the day. If you’re going to invest in space SPACs, consider the same approach. Certainly that’s been our method in staff personal accounts. We own a basket of SPAC shares, units and warrants (see the “SPAC asset class” link above which explains SPAC capital structures) across a range of tickers, from the relatively proven (RocketLab - SPAC ticker $VACQ) to the (in our view) totally fanciful (AST SpaceMobile - now de-SPAC’d, fully merged - ticker $ASTS).
We could be wrong, often are, but it looks to us like now is a good time to be putting some money to work in these names. Which ones? Diversification isn’t a bad strategy here, since some will reach their intended orbit, some will explode on the pad and some will just drift around in a decaying orbit until they impact some other similar pieces of space debris, fusing spontaneously to form what investment bankers call a “rollup” or what normal people call a “grab bag of stuff”, which will limp around hoping to be rescued by Reddit.
It looks to our eye that confidence is just starting to return to this cohort of names. Signs of life are showing in the securities of Spire Global (SPAC ticker, $NSH), Rocket Lab ($VACQ) and AST SpaceMobile ($ASTS). Merger completion dates for many are approaching, the market is learning to love risk once more, and no fatal blow has been dealt by the SEC. So. Want a little excitement in your brokerage account? Have at it. One note of caution. This isn’t AT&T ($T) you are buying here. Read the small print, particularly if you are thinking of buying warrants or units. Many have redemption provisions which can hurt you if you don’t have your wits about you. Polish your spectacles, get a good night’s sleep the night before, and read the documents.
Want a happy read to start, before you dive into the dirge of redemption provisions? You could do worse than read the ‘Analyst Day’ presentation given by Spire Global to its putative sellside coverage army recently. The company filed it with the SEC, and you can read it here
. Now, if you have managed to avoid banker Powerpoint thus far in your life, (1) many congratulations on enjoying a varied and rich existence, we’re jealous, and (2) we can tell you, this is what good looks like to a banker or investor or analyst. And since, in investing, nothing is real, this matters. Because upping your Powerpoint game goes a looong way to getting good coverage of your stock, and whilst you do in fact have to deliver, you know, revenue and earnings and all that guff at some point, a little advance fanfare from the sellside community never hurts. Anyway, once you have gotten all happy reading that, then rearranged your in-tray, made a coffee, checked your inbox, considered whether your screen is at exactly
the right angle or not and maybe it’s time to buy that new not-Intel-iMac-I-wonder-whether-I-should-buy-a-PC-this-time HEY! HEY! FOCUS!!! then it’s time to read some warrant documentation lol.
Oh, we almost forgot. We just launched a cheap-as-federally-subsidised-chips service focused entirely on the space sector. For a mere $49/month or $399/yr, you get our work on space names delivered direct to your inbox and a members-only chatroom too (we welcome contributors and lurkers alike). We cover high growth opportunities like those above, established space pureplays like Maxar ($MAXR) and Iridium ($IRDM), and boring ol Boomer plays (you know, the ones that made out like bandits last quarter that you said you would definitely not ignore next time around - right?) like Lockheed Martin ($LMT) and Northrop Grumman ($NOC). Oh and L3Harris ($LHX) which, and you heard it here first, is, we think, going to be raising its space game bigly in the next year or two.
For this week only, ending Wednesday 16th June, you get an introductory discount. $39/month or $299/yr gets you the service. You can read the long pitch here
or if you just want to punt $39 and see whether you like it or not, you can sign up here
Cestrian Capital Research, Inc - 10 June 2021.
DISCLOSURE: Cestrian Capital Research, Inc staff personal account(s) hold long position(s) in ASTS.W, IRDM, MAXR, NSH, NSH.W, T, VACQ.U, VACQ.W.