MDA’s Acquisition of Neptec Shows Weakness in the Canadian Space Sector

If anyone thought MDA was leaving Canada, they better think again. The announcement on Monday that they had acquired Ottawa based Neptec Design Group is an example of how the company is consolidating its hold on key technologies.

A weakened space sector

The acquisition is a reflection of a weakened civil space sector where no significant government projects are in the offing.

Faced with a diminished civil space sector and an ever increasing competitive market, Neptec found itself hard pressed to maintain its current level of operations, let alone grow.

For MDA, acquiring Neptec at this time was fortuitous as the price wasn’t steep, and importantly, it also satisfies MDA’s parent company Maxar Technologies desire to acquire assets based in the United Kingdom (U.K.). Neptec has a U.K. division. Adding Harwell based Neptec U.K. to MDA’s portfolio was an important piece and could prove beneficial. Call it a double win for MDA and Maxar.

It’s no secret that while the Canadian government vocally supports industry, it isn’t putting any new significant money into the civil space program. Meanwhile countries like the U.K. are aggressively moving forward with plans to capture a greater share of the global space marketplace. To do that they are investing in space infrastructure including spaceports, and are setting the stage for decades of potential growth.

Australia is an interesting example as well. On July 1st the Australian Space Agency was reborn. Yes, you read that correctly. Twenty years ago successive apathetic Australian governments shut down the agency, citing economic reasons. Today, the new Australian Space Agency has bipartisan support and was born again for economic reasons*.

As with other markets the space sector needs a balance of government support to go along with natural market forces. Currently in Canada, the balance isn’t there and this deal is a reflection of that.

MDA and Neptec technologies aligned

As outlined in the press release, adding Neptec’s suite of technologies to MDA aligns well with its plans for on-orbit servicing, space mining and space manufacturing. Critically, and depending on your perspective, it limits and makes the government choice of who to select for several contracts related to the Lunar Orbital Platform-Gateway program rather easy. That is, should Canada commit to the U.S. led program.

Not everyone is pleased with the acquisition. Several sources have told SpaceQ over the years that MDA is already too big and it’s hard to compete for contracts. This deal won’t help that perception.

MDA is paying C$42 million to acquire Neptec with only C$8 million being in cash and the balance in Maxar common shares. With Maxar’s outstanding share listed at 56.4 million as of May 2, per MDA filings, they’ll need less than 489,000 to satisfy the deal based on yesterdays closing price.

In his statement, Paul Nephin, Neptec CEO, clearly sees how leveraging MDA and Maxar could help grow Neptec’s business. “In our nearly 30-year history, Neptec has contributed critical systems to some of the most demanding space exploration missions, and we’ve built a reputation for making things work in challenging environments. Combining our capabilities with MDA creates a tremendous opportunity to win new business and continue to expand our footprint in Canada, the United Kingdom and globally.”

Mike Greenley, MDA’s Group President concurred with Nephin saying “today’s announcement provides a tremendous opportunity to advance and grow MDA and Neptec internationally, develop powerful new technologies and drive future economies. The Neptec team is well-established in the industry, and this investment represents an important strategic opportunity to offer broader solutions for the growing space exploration market.”

The need to grow

In North America the commercial space sector has in recent years seen consolidation of several large companies. MDA acquired SSL then DigitalGlobe/Radiant Solutions to create Maxar Technologies.  Honeywell acquired COM DEV. Orbital and ATK merged and then they were swallowed up by Northrop Grumman.

It’s clear by the moves that Maxar is making that it wants to get bigger. There could be more acquisitions on the horizon, though it’s hard to see any more in Canada at this time. Neptec was the prize.

It’s important to note that since the Maxar merger was completed, CEO Howard Lance has also been making the rounds to get institutional investors to increase Maxar’s shares in their portfolios. Related to this, with ETF’s booming, the two largest Aerospace ETF’s, iShares U.S. Aerospace & Defense ETF and SPDR S&P Aerospace & Defense ETF, don’t include Maxar. There’s no question Maxar would like to be included in these ETF portfolios.

Maxar has also been much more visible at conferences and in sponsoring events such as the recent Politico chat with new NASA administrator Jim Bridenstine.

And as the news of the Neptec acquisition was being made public, Mike Greenley and others at MDA were concluding their day at Farnborough having met with key Cabinet ministers.

* Tune in tomorrow for the SpaceQ podcast where I speak with Australian industry veterans about the new Australian Space Agency and what it means for the country and how industry opened up the governments eyes to what was happening in their country.