Pent-up deal activity from 2024 looks set to spill into 2025, potentially making it the busiest period for space mergers and acquisitions in years.
“The interesting thing from my perspective for 2024 was honestly the deals that didn’t get done,” noted Tyler Letarte, a principal at private equity firm AE Industrial Partners, during the SmallSat Symposium in Silicon Valley Feb. 5.
“We saw a lot of opportunities. We were busy throughout the year looking at businesses that were subsystems, exquisite payloads, critical components for smallsats.”
Letarte pointed to six to 10 deals that he expected to close by the end of 2024 that never crossed the finish line.
“Some of those are still lingering, and hopefully they do get done,” he added.
Several factors stalled M&A activity last year. Among the reasons were delayed government contracts, high interest rates and valuation concerns from sellers unwilling to accept lower bids.
Consider the U.S. Space Force’s Space Development Agency (SDA). That defense shop shifted its timeline for contracts, which in turn left some companies unclear about their revenue and therefore unable to pursue deals. Additionally, the regulatory environment under the Federal Trade Commission (FTC) discouraged some larger mergers.
Hoyt Davidson, managing partner at space M&A adviser Near Earth, told SpaceNews his firm is already seeing increased interest in acquisitions across the sector.
This buzz is driven by two major trends, he said:
First, an expectation of higher U.S. government spending on early-stage defense technology and national security satellites, particularly as the country seeks to match China’s growing space capabilities. And second, a growing level of interest from well-financed commercial space companies looking to grow through acquisitions.
“We also suspect from our own experience, that there is a good deal of pent-up demand from the last couple of years where smaller companies considering exits delayed them in search of a better valuation environment as they continued to build their businesses,” Davidson said.
Near Earth focuses on the lower middle market, generally covering deals valued at between $10 million and $150 million.
Deal drivers
While making predictions remains challenging, especially as flat defense budgets become mired in uncertainty, Novaspace senior consultant Lucas Pleney said it is clear the space industry is already undergoing significant restructuring.
Pleney pointed to major M&A activity across multiple space market segments in recent years, including:
- Satellite operators, which are restructuring to compete with Starlink, SpaceX’s low Earth orbit broadband network that has disrupted traditional space communications.
- Manufacturers, where European giants Airbus Defence and Space and Thales Alenia Space recently entered preliminary talks about merging their satellite business.
- Launch service providers, which frequently pivot their business models or face bankruptcy.
“The successful market penetration of Starlink has driven substantial changes across multiple verticals,” Pleney said via email.
He pointed to how the aviation industry has watched as major airlines like Air France and United adopt Starlink for in-flight connectivity, challenging legacy in-flight connectivity providers. In the maritime sector, companies such as vessel connectivity provider KVH, which previously resisted Starlink, are now reselling its services despite thinner profit margins.
Pleney expects a consolidation trend already sweeping across the industry to continue, although he said it remains unclear whether 2025 will see more or fewer transactions compared with previous years.
Big primes absorbing suppliers
Colin Canfield, Cantor Fitzgerald’s analyst for government technology and space, also expects some consolidation, mainly driven by government and technology enterprise investments, alongside growing interest from institutional and retail investors.
“We think smaller players are finding ways succeed across sector’s main areas — launch, satellite manufacturing, communications and intelligence,” Canfield said. But the best-positioned names are ones with secure backing from the federal government or major technology, media and telecom (TMT) investors.
“From a manufacturing standpoint, any space service provider that’s not considering end-to-end as the future is likely going to have issues — although large backers are shaping their investment to both the cost gap between their suppliers and leading players as well as their strategic incentives for supplier diversity.”
From an equity performance perspective, the next three to five years “could be a standout period for the space industry,” Canfield added, as government funding, strategic technology investments and growing interest from institutional investors all align to drive growth.
However, he said this performance will depend on how investors balance high-growth software companies, which can be valued at 100 times revenue, with space firms trading at lower multiples.
“Longer term, we think performance depends on cash performance and execution,” he added, “but near to medium-term equity performance is likely a function of sales growth and sentiment catalysts.”
A new M&A environment
While defense spending remains a key driver for space M&A, there is uncertainty about how budgets will be allocated under round two of the Trump administration.
Some space programs could receive increased funding, particularly in national security and military satellite applications.
However, other defense areas may face cuts as Trump recently proposed a $50 billion reduction in the fiscal year 2026 defense budget, and thus far there is no indication space programs will receive any special protection.
Some military programs may also be cut for political reasons, regardless of strategic value, as Congress and the Pentagon battle over funding priorities.
Despite this uncertainty in government spending, the Trump administration is also focusing on deregulation that could accelerate deal-making.
Under the previous administration, the FTC, led by Lina Khan, took an aggressive stance on antitrust enforcement, making large-scale space industry consolidation more difficult.
With Khan’s departure, Chris Quilty, CEO of research firm Quilty Space, expects M&A activity to increase significantly.
“I expect the M&A spigots to open,” Quilty said in a Feb. 18 email.
“And right on cue, the IPO window has opened,” he said, pointing to plans by Karman and Voyager Space for an Initial Public Offering this year.
If these and other IPOs succeed, he said venture capitalists could see renewed exit opportunities, helping revive the venture funding ecosystem for space startups.
However, if IPOs struggle, or continue to hold off amid market volatility and uncertainty, more companies may turn to acquisitions as their best option for growth — potentially driving even more M&A activity in 2025.
This article first appeared in the March 2025 issue of SpaceNews Magazine.
