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Fresh off dramatic majority shareholder exit, Firefly could be headed for a SPAC

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Firefly Aerospace’s rollercoaster ride could soon send the rocket startup to the public market via a merger with a special purpose acquisition company, a recent filing with the FCC suggests.

Aerospace private equity firm AE Industrial Partners (AEI) announced last month that it had reached an agreement to acquire a “significant stake” in Firefly after its largest shareholder, Ukrainian Max Polyakov, was forced to sell his shares over national security concerns. A recent FCC filing provides new details of the deal, including that it involves a special purpose acquisition vehicle.

The new FCC filing, which relates to a proposed launch of Firefly’s second Alpha rocket from Vandenberg Air Force Base in California this spring, adds that the acquisition involved “the majority of Firefly Aerospace’s equity” and was by “special purpose acquisition vehicles controlled by AE Industrial Partners.”

The move would not be unprecedented for AEI. In 2020, the private equity firm that specializes in aerospace, defense and power generation bought Deep Space Systems and then combined it will a previously acquired company Adcole Space to form space infrastructure company called Redwire. AEI took Redwire public last September via a SPAC merger.

AEI declined to comment on the filing to TechCrunch. Firefly CEO Tom Markusic has publicly talked about taking the company public in the past. Markusic told CNBC last November that there could be a public offering as early as 2022. Neither Firefly, Noosphere nor Polyakov immediately responded to requests for comment.

Firefly has experienced many challenges since Markusic, a SpaceX, Blue Origin and Virgin Galactic alum, founded it in 2014. In its original incarnation, Firefly began to develop the Alpha rocket for use as an air-launched rocket with Paul Allen’s Stratolaunch system. But a trade secrets lawsuit from Virgin Galactic, mounting costs and the withdrawal of a major investor saw the company run out of money in 2016, before launching anything.

A series of maneuvers followed, including a lightning asset sale and a brief Chapter 7 bankruptcy that are still the subject of litigation by the company’s early investors. The upshot was that, in 2017, Polyakov gained control of a new version of Firefly, including its intellectual property and many of its engineers, through his investment company Noosphere Venture Partners.

The company then enjoyed substantial commercial success, including multiple satellite launch orders and a $93 million contract from NASA for a proposed lunar lander called Blue Ghost. Firefly raised in May 2021 $75 million in a Series A round. At the same time, Noosphere sold about $100 million of its Firefly holdings to Series A participants, which reportedly reduced its overall stake to less than 50%. Noosphere’s remaining equity would be valued at around $500 million.

In September, Alpha’s maiden launch failed to reach orbit when one of the rocket’s engines shut down two and a half minutes into flight. It was in the process of negotiating a launch license for its second attempt when Bloomberg reported that Polyakov had agreed to sell Noosphere’s stake in Firefly. His move was reportedly prompted by the Committee on Foreign Investment in the U.S., or CFIUS, expressing concerns about the possibility of Firefly’s technology making its way to Ukraine, Russia or other nations.

In February, Polyakov took to Facebook to accuse CFIUS, the US Air Force and other US agencies of betraying him, and saying that he was “giving up” his stake in Firefly to Markusic for $1. In fact, the transaction, announced late last month, was ultimately with AE Industrial Partners. And it was worth at least $101 million, as it triggered a regulatory review that kicks in at that amount.

The recent FCC filing gives more detail on the transaction. As well as purchasing the entirety of Noosphere’s stake, AEI made a $75 million direct equity investment in Firefly Aerospace through a Series B preferred equity round. The combination, noted AEI, means that it “will own over 50% of Firefly Aerospace’s equity and voting interest percentage and will have the right to appoint a majority of Firefly Aerospace’s Board of Directors.”

Space SPACs were market darlings in 2020 and 2021, with companies like Virgin Galactic and Rocket Lab seeing their stock soar. But of the dozen space startups that used SPACs to go public, only AST Space Mobile (working on a space-based cellular network) is trading above their typical launch price of $10, and only by pennies. AEI’s Redwire is currently trading below half its 52-week high.

The timing of Firefly’s SPAC could depend on when it can prove its ability to reach orbit — and that is still very much up in the air. While Firefly’s application to transfer the communications authorization for its second Alpha flight was approved overnight by the FCC last week, the FAA has yet to issue the company with an actual launch license.

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