Is M&A set to take off in the UK space sector?

The space industry may call to mind images of NASA astronauts, Cape Canaveral and the International Space Station. In other words, a lot of things a long, long way from the UK. However, closer to home, the domestic space industry here in the UK is rapidly growing and is being tipped to have its biggest year yet in 2022.

Back in 2020, the UK government demonstrated its commitment to the space industry with the unveiling of LaunchUK, its commercial spaceflight programme. Through this programme, the UK is seeking to establish UK spaceports offering commercial launches from this year.

LaunchUK involves numerous funding packages, including £99 million for a National Satellite Test Facility, developing relationships with international partners to improve financing and supply chains, and investing in the UK’s spaceflight capabilities through Spaceport Cornwall and a spaceport in Scotland that will support vertical launches.

With the UK government increasingly focusing on the country’s space capabilities, big companies and innovative startups in the UK both helping to drive the commercialisation of space and investors taking an increasing interest in the sector, the UK is forecast to see strong dealmaking in the space industry this year.

There are several trends driving this, with the global space industry having experienced record-breaking years in both 2020 and 2021. However, while this looks set to continue, M&A in the UK’s space sector is complicated by several headwinds that dealmakers may have to traverse if growth is to be translated into a full-on M&A boom.

What’s the current situation?

From a dealmaking perspective, 2021 was the biggest year yet for the global space industry, with a range of acquisitions, numerous IPOs and a huge amount of investment, both public and private. In the first 9 months of 2021 alone, the private sector pumped around $7.7 billion (£5.7 billion) of investment into the sector.

Conditions have proven perfect for M&A activity, resulting in strong deal volumes and value. According to figures from Global Data, the wider aerospace, defence and security (ADS) sector saw the second strongest growth in deal value (after the apparel sector) from $2 billion in Q3 2020 to $29 billion in Q3 2021.

Growth in ADS deal value was particularly strong in Europe as the market continued to develop throughout 2021. In Q3 2021, the European market reported quarter-on-quarter growth of 2,331 per cent in deal value, in comparison to 210 per cent in the more developed, consolidated US market.

This translated into strong deal volume and, within the ADS sector, space was the key driver of M&A. According to GlobalData, the aerospace sub-sector saw 53 deals in the first nine months of 2021, the highest of all sub-sectors within the industry.

Strong space sector M&A was also in evidence within the UK market, with numerous local space firms making acquisitions, or finding themselves acquisition targets for domestic and international buyers looking to tap into a potential boom. The sector’s growth was also illustrated by a number of high-profile public listings, which then provided these companies with the funds to embark on their own acquisition sprees.

One notable listing was space tech fund Seraphim Space Investment Trust, which launched a £180 million IPO on the LSE last year. Following its IPO, Seraphim Space Investment Trust made several acquisitions, including buying a stake in Arquit Quantum, a company that had just listed on the Nasdaq through a merger with special purpose acquisition company (SPAC) Centricus Acquisition Corp.

This surge of activity looks set to continue. Private equity investment is forecast to easily hit $10 billion (£7.3 billion) this year and the UK appears set for even stronger growth, more dealmaking and potentially a number of companies exploring options such as a public listing or private equity acquisition to fund their growth plans.

The key drivers of M&A in the space sector

Geopolitical influence in a tense world
The space race has shifted considerably from the days of the USA and Russia competing to see who could be the first into orbit or onto the surface of the moon. In real terms, there is now far more at stake, with space representing the ultimate frontier for nations looking to establish geopolitical influence and military strength.

As tensions have continued to rise between modern superpowers such as the USA, Russia and China, satellites have become increasingly vital, forming a crucial part of defence and communications infrastructure. As a result, satellites and other space technologies have become an ever-bigger part of defence spending, driving investment into the space sector.

Naturally, this has led to higher revenues and valuations in the sector, making the firms producing these vital technologies acquisition targets, or helping them to generate the funds to make acquisitions of their own. As this technology advances, space will become even more vital in geopolitics, even if tensions de-escalate, meaning this trend is likely to persist long-term.

Post-Brexit, the UK’s place within the geopolitical sphere of influence remains somewhat unknown. KPMG has identified two possibilities: either the UK and European superpowers like France and Germany will co-operate to create a new geopolitical hub or the UK will attempt to build its own presence on the global stage.

With relations somewhat frosty between the UK and EU, the latter option is perhaps more likely. But, either way, the UK will surely begin placing a greater focus on developing its geopolitical capabilities, meaning more emphasis on – and more investment in – the space sector and more dealmaking as a result.

Climate crisis
An even more pressing issue than establishing geopolitical supremacy (although perhaps not in the minds of many world leaders) is tackling the escalating climate crisis. Again, this is an area in which satellites and the commercialisation of space can be of huge value and importance.

Satellites in a low earth orbit can provide detailed, real-time monitoring, imaging and data on aspects of climate change such as greenhouse gas emissions, deforestation, sea and ice-cap levels. Data such as this is vital in assessing the rate and scale of climate change and in undertaking efforts to tackle it.

As the world becomes more eco-conscious and perhaps as countries and businesses are required to meet certain environmental standards (e.g. committing to net-zero emissions), the satellite technology necessary for monitoring and combating climate change will be in high demand, as will the companies producing it.

Diversification in the face of COVID-19
As we’ve discussed previously, one of the core methods that larger companies have employed to navigate the upheaval of the COVID-19 crisis has been diversification. Throughout the pandemic, companies have used acquisitions to expand their ranges of products and services, tap into emerging market trends and generally safeguard their cash flow from the impact of the pandemic.

With space technology being such a relevant sector given the aforementioned applications, satellite firms could find themselves targets for companies looking to expand into space tech. Furthermore, KPMG has noted that the split in the aerospace market between civilian and military-focused firms could encourage dealmaking as firms in either camp look to diversify into the other sub-sector.

In the UK, this could see many space and satellite-focused startups become acquisition targets for bigger firms, such as tech companies, and international buyers looking to enter the UK’s burgeoning space sector. Similarly, with the UK beginning to intensify its focus on the civilian and commercial aspects of space through LaunchUK, UK defence firms with aerospace operations may look to tap into what could soon be a booming civilian space market.


September 2021 saw one of the most significant UK space sector deals, as defence and aerospace giant BAE Systems announced that it would acquire smallsat firm In-Space Missions for an undisclosed fee.


As well as enhancing BAE’s small satellite capabilities, the acquisition also demonstrated the rapid development of the UK small satellite market and its importance from a geopolitical and defence perspective.


BAE Systems’ Chief Technology Officer Ben Hudson said: “The UK has an opportunity to be a global player in the growing low Earth orbit space market, as well as servicing its own sovereign defence and commercial needs.”


The government also approved, with Science Minister Amanda Solloway calling the acquisition “a great vote of confidence in our thriving space sector” and saying it would “help to expand the UK’s capabilities in low Earth orbit satellites, creating valuable export opportunities while keeping this country at the forefront of a new commercial space age.”

Thriving market driving dealmaking
The LaunchUK programme is indicative of the sense that a significant era is dawning for the UK’s space industry. This is being driven by a diverse, thriving industry comprising the likes of defence-focused satellite firms, a commercial spaceflight market that is set to begin operation from Spaceport Cornwall this year, and the numerous ancillary businesses within the wider supply chain that help to support and enable such operations.

Given this, and the UK’s status as a financial hub, it seemed inevitable that the UK space sector would begin to attract serious investment and this has been demonstrated in 2021. Virgin Orbit plans to begin launching commercial flights from Cornwall this year, publicly-listed firms such as Seraphim Space Investment Trust have commenced acquisition drives, while satellite operator OneWeb announced in December 2021 that it would invest £2.2 billion in moving its manufacturing operations from the US to the UK.

With this level of investment, it seems all but certain that dealmaking will continue to grow in the UK’s space sector for the foreseeable future. The market’s growth and the huge levels of capital present in the sector will encourage both domestic dealmaking by UK-based firms and consolidators, as well as attracting in-bound M&A from international buyers keen to tap into this high-growth industry.


Broadband satellite firm OneWeb fell into bankruptcy in March 2020, before being resurrected the following November under a new ownership group, led equally by the UK government and Indian firm Bharti Global.


Under the terms of the ownership, the UK government and Bharti’s shareholdings will decline as new investments are made in the firm. As well as demonstrating the UK government’s commitment to space technology and the growing small satellite market, investments in London-headquartered OneWeb also serve to demonstrate appetite for the UK’s space market.


In August 2021, South Korean technology and manufacturing firm Hanwha Systems invested $300 million (£221 million) in an 8.8 per cent share of OneWeb. The deal brought total equity investment in OneWeb to $2.7 billion (£1.98 billion) and secured valuable advanced tech capabilities for the UK firm.


Perhaps most significantly, however, the deal showed how attractive the space market in the UK is becoming to international investors. As the government looks to further develop the sector, in-bound investment from such technology giants and other international investors will be of crucial importance.


Commenting on the deal, UK Business Secretary Kwasi Kwarteng said that it “will put our country at the forefront of the small satellite market, which is set to rapidly expand over the years ahead.”

However, it’s not just international buyers driving M&A in the UK’s space sector. The UK is also home to several domestic outfits that are making big moves as growth in the space sector picks up pace.


Seraphim Space Investment Trust (SSIT) is the world’s first listed fund focused on acquiring space tech companies. The company’s strategy sees it target early and growth stage companies with the potential to become global sector leaders in areas including communications, cyber security, mobility and the climate.


In December 2021, as set out in the prospectus for its IPO, SSIT acquired two firms from the Seraphim Space Fund in deals worth more than £28 million combined. The first deal saw SSIT acquire ICEYE, the operator of the first and largest constellation of miniaturised satellites providing radar imagery of the earth. Data from ICEYE’s constellation is used by a number of clients, including governments, and can be utilised for purposes such as tracking deforestation of rainforests and assessing natural disasters.


The second acquisition was for space logistics and orbital transportation firm D-Orbit, which operates the ION satellite carrier spacecraft. ION is the only current space logistics service offering a flexible and cost-effective “last mile” delivery solution in orbit, guaranteeing its customers satellite deployments in their requested orbits. Other than delivery, ION also offers services such as cloud infrastructure, relay communications and data storage and analytics.


CEO Mark Boggett said SSIT had “invested in a variety of new portfolio companies that are rapidly transforming the SpaceTech sector to provide solutions to some of the world's most pressing problems."

What potential headwinds does the market face?

Despite the understandable optimism and excitement currently surrounding the UK’s space industry, the market is not without its headwinds. While these may not be enough, even collectively, to derail the momentum the sector currently has, these are still factors that dealmakers may find they have to contend with when pursuing M&A deals in the UK’s space market.

Perhaps the most tangible threat to UK space M&A is the new National Security and Investment Act, covered in last month’s lead insight. Under the act, several sectors relevant to the UK’s space market are among those subject to mandatory government notification, most notably the Satellite and Space Technologies Sector.

While the new act is not forecast to lead to many deals being prohibited, as we covered in the insight last month, the notification process could add a significant delay to a deal process as government vetting and confirmation is awaited. This may not quell investor appetite in the UK’s space sector, but it is certainly something that buyers and sellers will have to factor into their planning and due diligence processes.

Brexit represents another possible hindrance to the UK’s space sector. While the government has clearly signalled its intent to spend big in order to grow the sector as much as possible and become a true world leader, it remains to be seen whether Brexit will harm these efforts.

With EU superpowers also aiming to collectively establish themselves in the space market, might the combined forces of France, Germany et al put the solitary UK in the shade? And, an issue that has cropped up numerous times post-Brexit, does the current UK government have the capacity to forge the international relationships needed to cement truly global status in the space industry?

Finally, the potential impact of the COVID-19 pandemic must also be mentioned. Clearly, the UK government is committed to serious investment in space. But, with unprecedented public spending having to be made during the pandemic, it is possible that the government will somewhat curtail its investments into such areas at a time when the burgeoning sector requires a huge amount of capital input in order to maximise its growth prospects.

However, looking at the bigger picture, these issues will surely not be severe enough to seriously stem the sector’s growth, which appears to be strong, diverse and accelerating rapidly. The UK’s space sector is thriving, with a wide array of companies both large and small attracting huge amounts of interest from domestic and overseas investors. As a result, the UK space industry looks set to enjoy a booming M&A market over the coming years.

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