Assuming that Virgin Orbit’s merger with a SPAC (special purpose acquisition company) is approved by shareholders, the firm will receive less than half of what is expected. The merger between Virgin Orbit and NextGen Acquisition Corp. II, which is a SPAC that indicated its intention to merge with Virgin Orbit in August, was authorized by NextGen Acquisition Corp. II’s shareholders on December 28. Virgin Orbit will become a publicly traded business on Nasdaq under ticker symbol VORB when the deal closes at the end of the month.
The firms expected to raise $483 million for Virgin Orbit when they announced the merger: $383 million from the SPAC proceeds and $100 million from the concurrent PIPE (private investment in public equity) transaction that included Boeing and AE Industrial Partners as investors.
Virgin Orbit, on the other hand, stated in a statement that this merger will generate only $228 million in gross revenues, with $68 million originating from SPAC proceeds. This points to a high percentage of redemptions, in which SPAC shareholders choose to return their money rather than keep their shares in the amalgamated business. In recent months, SPAC mergers, in general, have experienced a problem of high redemption rates.
The other $160 million originates from the PIPE, which includes the initial $100 million as well as additional funding from Mubadala Investment Company and Virgin Group. Virgin Orbit said on December 23 that Virgin Group had pledged to pay up to $100 million to ensure that the deal matched the merger agreement’s “minimum cash condition.”
The corporations did not specify what the minimum cash condition was in their release but stated that the $228 million collected was sufficient to satisfy it. The minimum cash condition was $200 million, as per the merger agreement submitted with the Securities and Exchange Commission (SSE) in August.
It’s unclear what, if any, immediate consequences the fiscal deficit is going to have on Virgin Orbit, although it may force the company to seek further funds via a secondary offering. Virgin Orbit predicted in an August investor briefing that it will require $420 million in cash commencing in the second part of 2021 to achieve positive cash flow in the year 2024.
Despite the lower capital, Virgin Orbit and NextGen management praised the merger’s completion. “The funds raised through this transaction, along with our new accessibility to the public markets, is going to enable us to expand rocket manufacture and expand our space solutions business as well as product development while we keep expanding globally through strategic collaborations with clients around the world,” said Dan Hart, Virgin Orbit’s CEO.