SPACs Cherry-Pick the Jewels of the Earth Observation Economy

Last year saw multiple special purpose acquisition company (SPAC) merger announcements in the United States from space start-ups, illustrating a growing interest in space from private investors. Many experts have written on the subject, with mixed views on whether the use of this mechanism is positively or negatively impacting the long-term sustainability of space companies going public.

One of the main concerns is linked to the fact some of these companies are still very early stage, targeting nascent niche markets, but publishing very ambitious plans in their investor presentations. Some of the projections forecast hundreds of millions of yearly revenues — sometimes more than $1 billion — in the next four years, despite having no revenue at the moment of the announcement. Among the 10 SPACs announced in 2021, four companies are focusing on the Earth observation (EO)/imagery and sensing business, therefore positioning the EO market as one of the most promising areas for future investment in space.

Whatever views you may personally have on SPACs for the space industry (or even SPACs in general) – and despite the poor financial performance of these stocks on the market as of today – companies going public via this mechanism successfully raise a significant amount of liquidity, ranging from more than $260 million for Spire to $590 million for Planet, to be used for scaling up their operations and achieve their very ambitious growth plans. The cash balance available thanks to the IPO opens the door for strategic targeted acquisitions to strengthen their core competencies.

We saw the first moves in November 2021 with Spire acquiring ExactEarth for $161.2 million, and Planet acquiring Vandersat for $28 million. If the first one is clearly a strategic acquisition to consolidate its core automatic identification system (AIS) market (i.e. consolidation of AIS software suite, accessing historical AIS data basis, expanding core customers basis, and therefore increasing recurring revenues), the second acquisition illustrates an interesting and audacious strategic move by Planet to achieve its growth targets.

Through this acquisition, Planet is operating a move down the value chain from pure satellite data provision to advanced information products vertically specialized. With this new addition in Planet’s portfolio, the company will be capable of offering an end-to-end solution for key verticals such as agriculture, food security, and climate-risks indexes, in which Planet can leverage its core competitive advantage (i.e. having the best geographical coverage with the highest revisit on the market) to scale-up and enhance the production of advanced Vandersat specialized information products. This will better serve current customers and unlock new ones.

Before Planet’s acquisition, Vandersat relied mostly on low resolution open-source imagery from the Sentinels and the Copernicus program. The use of Vandersat technologies on all Planet archives and new data acquisitions (for both medium resolution and high resolution imagery) should therefore lead to the development of a promising integrated solution capable of providing automated insights related to water availability, crop health and vegetation indexes on a global basis and with a unique revisit time.

In addition, Vandersat has already established a consistent and prolific customer basis, with big names such as AXA Climate, SwissRe, and BASF, opening new possible streams of revenues for Planet on an untapped market in view of fulfilling its targeted revenues of $693 million by 2026. With this move, and expected other targeted acquisitions, Planet has found a great match for its growth strategy: moving from a pure satellite data provider business model to a provider of specialized information products and services in selected key verticals for Planet, notably agriculture, leveraging subscription-based business model.

What can we learn from this strategic move by Planet? What is to be expected by the large influx of liquidity from SPACs on the EO market?

The EO market has historically been quite niche, with plenty of marvelous small players with key patents (or at least unique technologies and/or algorithms) and highly competent expert teams. A lot of these solutions have very strong economic prospects in key emerging markets, such as agriculture and food security, environmental, social, and governance (ESG) reporting or climate risk monitoring, but often lack the funding to scale their production to meet mass-market requirements and capture end users' concrete pain points.

A lot of these jewels in the EO economy may already be on the wish-list of the recent SPACs in EO. The influx of cash from the IPOs is expected to lead to further acquisitions and therefore a strong consolidation of the industry. In addition, the big difference of capital influx between regions, notably between the U.S. and other regions such as the European Union (EU), would make a lot of small players with very interesting assets available at low cost for U.S.-based companies that have a better access to venture capital funds.

The approach used by Planet is expected to be replicated by other EO players that went public in 2021 and will now be looking for very aggressive growth, therefore requiring inorganic growth. For this purpose, companies going public through IPOs generally develop a list of priority targets for acquisitions to support growth strategy and reach targeted revenues. Despite the uncertainty behind the use of SPACs mechanisms for EO start-ups, the capacity of raising large amounts of liquidity could give a first-mover advantage to those companies toward vertically specialized end-to-end offerings in selected verticals.

These new strategic moves are expected to stimulate market consolidation on key verticals, where large players will build strong differentiators thanks to targeted acquisition. This new trend could lead to the emergence of some vertical champions, like what Planet could become in agriculture and food security, including some adjacent markets such as crop insurance and climate-related risk assessment and monitoring.

The main question for all of the newly publicly traded EO start-ups is — How would you cherry-pick the jewels of your crown to become a vertical champion in your core verticals? VS