Dear readers,
Welcome to Quartz’s newsletter on the economic possibilities of the extraterrestrial sphere. Please forward widely, and let me know what you think. This week: Consolidation is coming, a very large plane, and Aerojet Rocketdyne seeks a buyer.
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One of the most fascinating players in space business is AE Industrial Partners, a private equity fund that has snapped up space companies left and right in the last four years, creating a portfolio worth about $1 billion. This week, I talked about the deal-making spree with Kirk Konert, a partner at the fund who sits on the boards of Redwire Space and Firefly Aerospace.
How did AE wind up in the space business?
We had space exposure but we didn’t have a dedicated strategy to invest directly into space. And at the time, I don’t think any private equity firm really did. We took a step back probably around 2018 and said, look, space is growing within our portfolio. What’s going on here? We see defense, civil, commercial at an inflection point, those demand drivers all appear to be poised for growth over the next decade.
How do we invest? You have launch, you have satellites, you have ground. Are we prepared to take a big bet in one particular area? We’re not smart enough yet. But how do we create a company that can benefit from the growth? That’s why we created Redwire Space. There’s an opportunity in that supply chain where you have a lot of these companies that have been around for decades and producing flight-proven hardware. They’re founder-owned businesses, family-owned businesses. They’re not prepared for what’s coming: Large production rates. It’s coming and people want flight heritage for their components. We’re in business to go be the acquirer of choice in the space sector.
When AE assembled Redwire from nine different companies, was there much competition?
Not really. We were actually the first people to actually talk to some of these companies. Our other sectors like commercial aviation, everybody has spoken to the commercial aerospace supply chain, right? It’s been super consolidated over the last decade, a private equity story. Within space, nobody had really approached these people.
Why did you take Redwire public in a SPAC transaction last year?
You know, our plan was not to go public. Why we decided to go, we think it’s an extension of the Redwire strategy, which is, we’re gonna be the acquirer of choice. We go to these founders and families—the public story allowed us to say this is your forever home. And we get actual currency to go buy companies. We have sellers roll over into Redwire and when you’re public, you have that currency—you’ll get some stock in this company. A little bit like maybe L3Harris in the early days, when it was rolling up the defense sector.
Publicly traded space companies are not doing well in the market today. As an acquirer, is this a target-rich environment?
The market will be consolidated in the next 12 months. It has to be, right? There are too many small public companies in the space sector. There’s going be some companies that have great models, but they shouldn’t be their own company. And then there’s going to be companies that are able to diversify their revenue streams and their offerings via consolidation. We have dry powder, right? We want to put capital into the sector where we’re bullish. Regardless of the market ups and downs and the cost of capital environment we’re in, we still believe space is a growth sector. There will be opportunities in the public markets to be active.
I have to ask, because a little bird told me that you guys are kicking the tires on Astra, the publicly traded rocket maker.
Even if we were, I couldn’t comment, but, you know, Astra is obviously in the midst of a transition, moving to a different rocket, and you know we’re partners with them. They provide components for some of our portfolio companies and vice versa. At the end of the day, we’re rooting for the entire sector because we’re diversified across different companies.
Earlier this year, you purchased majority control of the rocket maker Firefly Aerospace after Ukrainian investor Maksym Polyakov was forced to divest by the US government. Was that opportunistic or something you had been thinking about for a while?
We knew Firefly—Redwire is actually partners with them in Blue Ghost [a moon lander project]. We hadn’t made a play in launch, right? All the companies either invest in SpaceX, or you invest in a very early startup that’s like a piece of paper. It was hard for us, as a private equity firm, to find an investment in the launch part of the market. With Firefly, it was a once-in-a-lifetime opportunity. It was an opportunity with the divestment to basically take a majority share of a launch company that had made significant progress from a technical perspective.
Have you considered a satellite operator?
Yeah, we just announced, three weeks ago: York Space Systems.
I think of them as a satellite manufacturer.
They’re mostly providing satellites to the [Space Development Agency] and other government customers. So, pure play operator, we’ve looked at it. We think the better play here for us, at least initially, is via York. They can provide data as a service offering to the commercial market, where we will build a satellite to exactly what spec you need from a data mission perspective. We’ll get the launch provider and then we’ll operate your satellites for you, right? Then you can just pay as a service for whatever data on a monthly subscription basis.
Is that because satellite operators you’re seeing are overvalued?
Everyone wants to build their own constellation, which I still to this day don’t completely understand. Why does everyone believe they need to be a space company? Be a data company, that’s what you’re good at. Having space assets is hard. There’s probably going to be a trend where there will be space companies that manage the constellations and there’ll be data companies. There’s fundamentally something incorrect about the cost of capital for each one of those. And then I do think the government is the biggest market for a lot of these players, and the government still can’t figure out how to buy data. They’re making progress, right? But it’s taking longer than these companies can probably afford.
This interview has been condensed and edited.
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IMAGERY INTERLUDE
The Surface Water and Ocean Topography (SWOT) satellite arrived at its California launch site in a C-5 Galaxy, the largest US Air Force cargo plane. You can read about the mechanics of this unusual delivery method in my 2018 ride-along story.
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What would you do with an extra day off per week? Would you fill it with that pottery class you’ve been meaning to take, or with more chores and errands? It may not be a hypothetical—more companies and governments are experimenting with the four-day work week.
🎧Listen to this week’s episode of Work Reconsidered on: Apple Podcasts | Spotify | Google | Stitcher
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SPACE DEBRIS
Aerojet Rocketdyne seeks suitor. Reuters reports the venerable rocket-maker is up for sale again after antitrust regulators prevented Lockheed Martin from purchasing it in a $4.4 billion deal earlier this year.
It’s almost Terran time. Relativity Space is planning the first launch of its Terran 1 rocket in the coming weeks, which could be the first methane-fueled to reach orbit, one-upping competitors SpaceX and Blue Origin.
New remote sensing just dropped. A start-up called Array Labs emerged from Y Combinator with a $5 million seed round and a plan to use simultaneous satellite imaging to create 3D models of the world.
The International Space Station dodged debris. Humanity’s peaceful outpost in space maneuvered to avoid colliding with the results of humanity’s belligerent weapons in space.
NASA launches UFO UAP review. The space agency has assembled scientists, aerospace engineers, an astronaut, and one very lucky journalist in a 16-member independent study team to assess unclassified data on unidentified aerial phenomena (UAP). Military pilots have reported a variety of unexplained encounters that have fueled public debate, and while the report due in mid-2023 probably won’t settle them, it will make for interesting reading.
A half-century of science. Edward Stone retired after fifty years as the chief scientist for the Voyager mission, which launched two spacecraft in 1977 that explored the solar system and then entered interstellar space, still sending observations back to Earth.
Your pal,
Tim
This was issue 156 of our newsletter. Hope your week is out of this world! Please send your space corporate acquisition targets, UAP theories, tips, and informed opinions to tim@qz.com.