Rocket Lab Raises Funds To Prepare For Closing Of Iridium Acquisition

People have been entranced by the emergence of the space economy. The potential to get in on the ground floor and reach the stars is intriguing and has captured the imagination of investors. One of the key participants in this emerging field is Rocket Lab (NASDAQ:RKLB), the self-described end-to-end space company, "delivering reliable launch services, complete spacecraft design and manufacturing, satellite components, flight software, and more."

In June, the company announced the proposed acquisition of Iridium Communications (NASDAQ:IRDM), which would combine Rocket Lab's launch capabilities and satellite manufacturing with Iridium's global satellite network and communications spectrum. This combination would accelerate the company's emergence as a tier-1 space power virtually overnight.

Now, the company has reached an important milestone ahead of the acquisition.

Show me the money

On Tuesday, Rocket Lab announced it had completed a $1.94 billion at-the-market equity offering by issuing 29.3 million shares of stock. The funds raised, when added to the company's existing cash pile, represent the total cash needed to fund the Iridium acquisition and pay off some of the company's existing debt. Management noted that, pending regulatory approvals, the deal is expected to close in mid-2027.

In another important development, Rocket Lab completed the required amendments to its existing $1.77 billion credit facility, securing the company's long-term financing, backed by its strong free cash flow. These changes were needed ahead of the organizational change.

In light of the cash raised in the equity offering and the changes to the existing credit facility, Rocket Lab has canceled the $3.6 billion bridge loan that was originally obtained to secure the deal.

These steps were important benchmarks that needed to be completed before the acquisition.

Big plans

At World Space Business Week earlier this week, Rocket Lab signaled big plans ahead of the acquisition. CFO Adam Spice said that acquiring Iridium will provide the final piece of the puzzle, transitioning Rocket Lab from a rocket company and satellite builder to a fully integrated space operator.

Spice noted that Rocket Lab is primarily known as a launch provider, having flown nearly 100 missions and expanding its launch business by developing Neutron, its reusable medium-lift launch vehicle. The company then built its satellite business, marking the next stage of its evolution. The acquisition of Iridium provides the "application piece," making the deal "incredibly transformational" and fulfilling Rocket Lab's ambition to be an end-to-end space company.

The CFO noted that the company can deploy additional capital to accelerate the growth of Iridium's more mature business. He went on to say the acquisition was the "first step" of "many steps" in the broader space market -- particularly in the applications and constellation business -- suggesting the company may be contemplating future acquisitions.

This all comes ahead of Iridium's special stockholder meeting scheduled for Sept. 24, when shareholders will vote on the proposed acquisition. The boards of directors of both Rocket Lab and Iridium have already unanimously approved the combination.

Rocket Lab isn't yet profitable, as the company is investing heavily in the development of its Neutron rocket. That said, Spice said during the company's Q2 earnings call that he expects that earnings before interest, taxes, depreciation, and amortization (EBITDA) will turn positive in the quarter after a successful test launch of Neutron, turning cash flow positive within 18 months to two years thereafter.

To sum it up, there's a lot to like about Rocket Lab, but it should be viewed as a high-risk, high-reward proposition and a smaller part of a balanced portfolio.

Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.