The first few weeks of August witnessed three significant acquisition deals, each involving a SmallSat manufacturer.
On August 7, one of Spain’s largest military and government contractors, Indra, announced that it had acquired Deimos, a SmallSat mission specialist that offers satellite integration, subsystem and ground segment technologies. Indra claimed that this acquisition and other recent investments demonstrate its “…commitment and desire to stand at the forefront of the European space industry.”
One week later, on August 14, it was announced that Redwire Corporation, a space infrastructure company, had acquired SmallSat manufacturer Hera Systems. This transaction was described by Peter Cannito, chairman and CEO of Redwire, as “…[fitting] squarely within [RedWire’s] growth strategy.”
Finally, the very next day, military contracting juggernaut Lockheed Martin announced that it had acquired SmallSat manufacturer Terran Orbital. Lockheed already owned one-third of the company from previous investments and had a partnership with Terran Orbital, which provided SmallSat buses for the company’s Space Development Agency (SDA) programs.
With so much deal activity happening in such a short period of time, it naturally raises questions about the long-term viability of the SmallSat market and whether the industry is actively experiencing consolidation – when companies in an industry begin to merge together to become larger and more competitive.
“Are we seeing an ongoing or an increasing wave of consolidation? We should be, it makes a lot of sense. There’s not enough room in the market for all of these players,” explained Dallas Kasaboski, a Principal Analyst with Analysys Mason. “One of the things pushing back on that is investment. Investment continues. People want more satellites.”
If these deals are not part of a single, significant consolidation trend within the industry, what is driving the acquisition of so many SmallSat companies? There may not be one answer, but several. “I wish there was one easy trend [driving these deals], but there isn’t,” said Chris Quilty, the Co-CEO and President of Quilty Space. “There’s a lot of different trends going on within the SmallSat market.”
Based on discussions with space and satellite industry analysts, three overarching trends are most responsible for shaping the SmallSat industry and driving the acquisition of SmallSat companies.
Vertical integration
According to analysts, chief among these trends within the SmallSat industry is an increasing demand for satellite operators to begin controlling their own manufacturing and supply chains. This has led to increased vertical integration across the SmallSat market and the acquisition of SmallSat manufacturers by satellite operators.
“Satellite constellation operators are increasingly vertically integrating and taking over their own satellite manufacturing,” said Quilty. A good example of that is Hawkeye 360. They started with Toronto Spaceflight Labs [building their satellites], and then eventually built their own factory and are building their own satellites.”
Kasaboski agreed and shared another example of an operator that has vertically integrated by adding satellite manufacturing into its operations, “We see this all the time. As you know, Starlink acquired Swarm Technologies to increase its ability to manufacture its satellites. They’re doing everything now in-house.”
However, the desire to add satellite manufacturing capabilities is just one reason why companies are acquiring SmallSat manufacturers. Others see adding SmallSat capabilities to their portfolio as a way to reach new markets with deep pockets.
Militaries hungry for satellites
Two of the three acquisitions in early August involved a large “prime” defense contractor acquiring a SmallSat company. According to analysts, that shouldn’t be surprising because of a near insatiable appetite for satellites and commercial satellite services across global governments.
“The government and defense sector are showing an appetite for SmallSat and CubeSat manufacturers,” said Andrew Cavalier, a Senior Analyst at ABI Research. “[The] foundation of innovative technology supporting these companies makes them attractive for the defense and commercial segments.”
The desire for innovation has government and military customers looking away from their traditional partners to smaller, more agile startups and emerging growth SmallSat manufacturers.
”There was this thinking among government and military customers that they would only really engage with the primes for satellite manufacturing. For example, they would only engage with Airbus, Northrop Grumman, or Lockheed Martin,” Kasaboski explained. “In the past five or ten years, SmallSat companies have been working at making their products faster, cheaper, more capable, and better able to suit government and military requirements. They’ve become more competitive…”
By acquiring smaller, innovative SmallSat companies, large prime contractors can benefit from the constantly increasing appetite for satellites among global governments and militaries.
“The primes have tried to add [SmallSat capabilities] through acquisition. Boeing through Millennium Space Systems. Raytheon through Blue Canyon Technologies. And now Lockheed through Terran.” said Quilty. “The primes have all stayed exposed to the SmallSat market, but mostly on a secondary basis.”
However, the acquisition of SmallSat manufacturers isn’t just about getting access to government contracts; it’s also about making the systems prime contractors sell to the government more secure.
“As more applications and software become deployed on satellite networks, attack surfaces are increasing. Following the principles of zero trust, security-by-design, and security assurance should be more effective when there is better control of the entire process for producing components of the network,” Cavalier explained. “In this case, the satellites, themselves, have shown that they are not immune to cyberattacks. Since these manufacturers supply defense sector infrastructure, these acquisitions seem logical.”
While these two trends do account for many of the SmallSat acquisitions that we’ve witnessed in the recent past, there is one more trend that analysts feel could disrupt the SmallSat industry in the near future.
Evolution in space launch
Much of the initial boom in SmallSat and CubeSat constellations resulted from increased competition in the space launch industry, drastically increasing access to space for nontraditional satellite manufacturers and operators. However, continued evolution in the space launch industry could impact the overall demand for SmallSats and CubeSats.
“With the introduction of SpaceX’s Starship, there’s an underlying macro trend of what’s happening on the launch side and how that changes the economics of these business models,” said Quilty. “Should you even bother to build 200 KG satellites, or should you be building 20-ton satellites because that’s what you can launch on Starship.”
With the launch of larger satellites no longer a concern, operators could move to go bigger with their satellites in the future, decreasing the need for SmallSats.
“There have been pressures to move to larger satellites, which have been happening independently of factors like launch. Mostly, it’s because of satellite performance, lifetime, costs, and revenue considerations,” said Kasaboski. “Operators are moving to larger satellites because the satellites will last longer, be more capable, and generate more revenue.”
Ultimately, analysts agreed that these trends—vertical integration, government acquisition, and changes in the launch industry—are shaping and influencing the SmallSat industry, but it is not yet experiencing consolidation. While consolidation may feel inevitable in the SmallSat industry, new, innovative companies will invariably be funded to take the place of those being acquired.
There is pressure toward consolidation. The market cannot sustain this many constellations and this many manufacturers. Large and medium-sized satellite companies and defense contractors will be buying smaller SmallSat companies as everybody in the market tries to be more competitive,” Kasaboski predicted. “At the same time…we’re still going to hear about investment, a new facility being built, or some new emerging, innovative new company. Because space is still easier to access and more enticing…”
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