2023 has come and gone. 2024 is here. And last I checked, United Launch Alliance (ULA) is still a private company.
Surprisingly, this means that the sale by Boeing(NYSE: BA) and Lockheed Martin(NYSE: LMT) of their ULA space launch subsidiary, didn't happen as planned -- or as pundits predicted all year long in 2023. It also means we now have to ask a new question:
Will Boeing and Lockheed sell ULA in 2024 instead?
And might ULA end up getting sold via an initial public offering (IPO)?
Will the real ULA buyer please stand up?
As The Wall Street Journal confirmed last month, there are (still) three companies currently bidding to acquire ULA from Boeing and Lockheed: Jeff Bezos' Blue Origin, defense shop Textron(NYSE: TXT), and private equity firm Cerberus Capital Management.
Blue Origin
Blue Origin, I argued last year, remains the leading contender, with plenty of reasons to want to own ULA -- and plenty of money to pay for it. If Blue were to acquire ULA, not only would it secure a captive customer to buy the BE-4 rocket engines that it builds. It would also own ULA's fleet of Atlas V launch vehicles still in service, as well as its design for the Vulcan Centaur rocket, which made a successful first flight just last week. That's in addition to its own New Glenn rocket that's still in development.
At the same time, the cost to acquire ULA -- which I've ballparked at $5.2 billion, but which several analysts have argued will fetch less -- amounts to proverbial pocket change found in the sofa cushions to a multibillionaire like Jeff Bezos.
Textron
Textron, a defense company probably best known for its helicopters, and having limited exposure to "space," I'd contend runs a distant second in this race. On the one hand, the company boasts a reasonably strong balance sheet, with $15.3 billion in market capitalization and only about $2.2 billion in net debt.
But the company doesn't have enough cash to buy ULA outright, without issuing new shares or taking on more debt. Textron does run a reasonably profitable business, generating $858 million in free cash flow over the past year, according to data from S&P Global Market Intelligence. Over time, it could probably pay down any debt it takes on to buy ULA. But the purchase would still be a stretch -- and I just can't see Textron winning a bidding war against Jeff Bezos.
Cerberus Capital Management
Cerberus is something of a wild card. On the one hand, the private equity powerhouse could potentially face down Bezos in a bidding war. On multibillion-dollar deals, Cerberus often recruits other investors to act alongside it, giving it the ability to offer higher prices while still spreading out its risk.
Cerberus has also shown an interest in space companies of late, buying midair rocket launch company Stratolaunch just before it went bankrupt in 2019 -- then turning around and using Stratolaunch to place a $17 million bid for some of Virgin Orbit's assets after that company did go bankrupt last year.
Still, to date Cerberus' reputation has been as a bit of a vulture and a bargain shopper in the space industry, picking up assets that no one else wanted in hopes of whipping them into shape and making them viable again. Paying through the nose to acquire one of America's two biggest space companies really doesn't seem Cerberus' speed to me. (If Cerberus did buy it, though, it'd likely turn around and later sell it again in an IPO -- see below).
Which, again, is why I conclude that Blue Origin is the most likely buyer of United Launch Alliance.
What if?
And yet, what if I'm wrong? Or what if I'm right that Boeing and Lockheed will try to sell ULA to Blue Origin, but the Federal Trade Commission intervenes -- perhaps arguing that merging Blue and ULA would reduce competition in the space sector -- and forbids a sale?
In that case, Boeing and Lockheed Martin will have a decision to make. They may decide to keep running ULA as a joint venture. Or they might try to sell ULA to everybody -- to hold an IPO and make United Launch Alliance its own publicly traded company.
With ULA coming off a successful maiden flight of its Vulcan Centaur rocket last week, and the company loudly trumpeting its backlog of 70 Vulcan launches already reserved, worth billions of dollars in future revenue, the time seems ripe for an IPO. Investors, too, would probably be very interested in such an event. With SpaceX still playing a perpetual game of "will I or won't I" (ever IPO), investors tired of waiting for the chance to invest in SpaceX might jump at the chance to own a ULA IPO as a reasonable alternative to investing in SpaceX.
Come to think of it, if the profit margins are good enough -- I might jump at that chance as well.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and Textron. The Motley Fool has a disclosure policy.
