Rocket Lab Announces a Massive $8 Billion Satellite Acquisition. Now What?
Key Points
While a very strong space launch and satellite construction service provider, Rocket Lab doesn’t operate in the service segment of this market.
With satellite-based communications company Iridium, however, it does.
The two companies combined create a complete solutions provider for a sizeable swath of the market interested in any of its capabilities.
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While the market remains largely focused on newly IPO'd Space Exploration Technologies (NASDAQ: SPCX), known as SpaceX, and whether it will merge with Tesla or acquire T-Mobile, smaller rival Rocket Lab (NASDAQ: RKLB) just made a very big move. On Monday, it announced plans to acquire Iridium Communications (NASDAQ: IRDM) for $8 billion.
At first blush, it doesn't appear to mean much. Both minor players will remain minor players compared to SpaceX, even after the pairing is consummated. And perhaps that expectation is accurate.
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Nevertheless, this union has the potential to produce a sizable reward for patient Rocket Lab shareholders.
Image source: Getty Images.
The complementary deal
It's a smart match. Rocket Lab has already perfected a reusable small-lift launch vehicle called Electron, capable of putting up to 660 pounds of payload into low-Earth orbit. It's working on a medium-lift rocket with much greater power, too.
At the same time, it designs and builds satellites as well as components such as solar panels and propulsion systems that enable them to operate as intended. This satellite business accounts for more than half of its revenue, in fact.
What Rocket Lab doesn't do, though, is directly meet real-world needs with its technological solutions. But with Iridium, it can.
In simplest terms, Iridium Communications makes and markets communications and geopositioning solutions for maritime vessels and aircraft, defense forces, and emergency personnel, and navigation assistance for personal and commercial purposes, including equipment that's part of the so-called Internet of Things, which requires constant connectivity.
Most of these solutions require communication with satellites in --- you guessed it -- low-Earth orbit, which Rocket Lab now regularly reaches with ease. As of the latest count, 91 Electron launches have successfully deployed over 260 satellites. Now, institutions with this sort of technological need can get it all from one single, integrated source.
Plenty of opportunities ahead
Iridium boasts capabilities similar to (if not identical to) those of SpaceX. It's also leaps and bounds bigger than Rocket Lab, giving it more marketing firepower.
Don't dismiss the potential of this integrated offering, though. Customers with this sort of technological need are typically looking for something very specific, such as Iridium's Blynk Internet of Things low-code platform for remotely managing air purification systems and industrial sensors, or solutions like Rocket Lab's reaction wheels that control a satellite's orientation. It's conceivable that in many cases, the new-and-improved Rocket Lab may be the only outfit that can meet a particular need.
Up for grabs is an impressive amount of money, too. Precedence Research suggests the worldwide space launch market is poised to grow from just over $20 billion this year to more than $70 billion per year by 2035. That's still only a fraction of the future space technology market, though, which Precedence expects to double in size between now and 2035, when it will be worth $1 trillion.
With Iridium's tech on its menu, Rocket Lab is positioned to capture at least its fair share of this growth.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab and Tesla. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
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