Richard Branson’s Virgin Galactic will become the first publicly listed space tourism company after agreeing a US$1.5bn merger with New York-listed cash shell Social Capital Hedosophia Holdings (NYSE:IPOA).
A definitive agreement was signed to combine the two ventures, which will see a 49% stake owned by shareholders of Social Capital Hedosophia (SCH), a listed vehicle set up by venture capitalist Chamath Palihapitiya's Social Capital Partnership.
Palihapitiya, an original member of the Facebook Inc management team, will invest an additional US$100mln in the transaction at US$10 per share and will stay in the chairman’s role.
Branson and other selling equity owners of Virgin Galactic will receive US$1.3bn in total, including US$1bn of stock of the combined Company valued at $10 per share and up to US$300mln in cash.
After completion, the majority of the net cash from SCH’s trust, which stood at $0.3mln at the end of March, is expected to be held on Virgin Galactic’s balance sheet to fund operations and support continued growth.
The $1.5bn valuation implies a 2.5-time multiple of 2023 projected revenue and a 5.5-times multiple of 2023 projected underlying earnings as commercial operations are expected to achieve scale.
Virgin Galactic, which already possess a commercial space launch license, has customer reservations from more than 600 people, representing approximately $80mln in total collected deposits and $120mln of potential initial revenue.
Virgin Galactic has this year been carrying out further tests and putting final touches to its reusable space launch system, which consists of carrier aircraft WhiteKnightTwo and spacecraft SpaceShipTwo.
As well as SpaceShipTwo's successful test flight to the edge of space in February, Virgin Galactic has been completing work on the interior of its dedicated facility at Spaceport America, known as Gateway to Space, the world’s first purpose-built commercial spaceport.
SpaceShipTwo and WhiteKnightTwo are manufactured and tested in Mojave, California by its manufacturing partner, The Spaceship Company.
'Thousands of new astronauts'
“Great progress in our test flight program means that we are on track for our beautiful spaceship to begin commercial service,” said Branson on Tuesday.
“By embarking on this new chapter, at this advanced point in Virgin Galactic’s development, we can open space to more investors and in doing so, open space to thousands of new astronauts.
“We are at the dawn of a new space age, with huge potential to improve and sustain life on Earth.”
Virgin Galactic chief executive, George Whitesides, who will remain CEO of the enlarged group, said the transaction will provide the “financial flexibility to build a thriving commercial service and invest appropriately for the future”.
For Palihapitiya, who said it was “a privilege” to partner with “once-in-a-generation visionary” Branson, said the aim was to try and made commercial spaceflight a reality and he was confident that Virgin Galactic was “light years ahead of the competition”.
A multi-billion-dollar opportunity
With the cost of getting to space having fallen more in the last decade than in the entire prior history of space travel, a number of ventures has been launched into this sub-sector of the aerospace industry.
As well as Virgin Galactic Holdings Inc, as the combined venture will be called, other relatively new space players include Geoff Bezos’ Blue Origin and Elon Musk’s SpaceX, plus Las Vegas-based Bigelow Aerospace which plans to be the owner of the first space hotel with a launch booked next year.
The commercial space economy is generating annual revenue of around $350bn, mostly from commercial launches carrying satellites into different orbits, and grow to a $1.1trn industry by 2040, Morgan Stanley has forecast.
Of this, space tourism is estimated to be at least a $3bn-per-year opportunity by 2030, UBS airlines analysts predicted last month.
Furthermore, space travel could be used to replace long-haul flights for “time sensitive” travellers, the Swiss bank suggested, with a price of $2,500 per trip making this opportunity worth over $20bn a year.
“Although some might view the potential to use space to service the long-haul travel market as science fiction, we think the circa 800 route pairs on point-to-point flights that take more than 10 hours mean there is a large market to be cannibalised,” UBS airline analysts said.