DealLawyers.com Blog

As SpaceX’s high-profile IPO moves toward the launch pad, I think it’s fair to say that interest in space-related investments has reached levels not seen since my fellow Boomers and I were begging our moms to buy Tang for us at the grocery store.  But before private equity investors get ahead of themselves, they should check out this Debevoise blog on the diverging regulatory approaches to space-related investments in the EU & the US.

Debevoise says that the EU’s proposed Space Act is intended to “establish a unified legal framework among Member States and to promote interoperability of critical space infrastructure,” while the US is taking an “On your mark, get set, GO!” regulatory approach to space-related investments, subject to the usual national security concerns regarding foreign ownership. Here’s an excerpt from the memo’s discussion about the implication of these diverging regulatory approaches for PE investors:

These developments have several implications for private equity investors considering an acquisition in the space sector. First, investors should assess at the outset which regulatory frameworks are likely to apply to the target’s business and geographic footprint. The proposed Space Act reaches not only EU-based operators but also third-country providers offering space-based data or services in the European Union. In the United States, companies face heightened scrutiny of foreign ownership, data access and national security safeguards, even as implementation remains uncertain and technology may outpace regulatory clarity. Investors should diligence not only where a target operates today, but also which jurisdictions may become relevant as the business scales.

Second, investors should evaluate whether the target has the technical and organizational capacity to manage evolving and potentially conflicting requirements across jurisdictions. The proposed Space Act, in particular, may impose near-term costs through spacecraft redesign, contract renegotiation and new reporting processes, while dual U.S.-EU exposure may create additional challenges where regulatory equivalency remains uncertain. There is also the possibility of having to adapt to regulatory countermeasures one jurisdiction might take against the other. FCC Chairman Brendan Carr, for example, has warned that the United States could consider reciprocal measures if the European Union adopts policies favoring European satellite providers over U.S. competitors.

The blog goes on to say that in an environment like this, compliance risk should be viewed as a dynamic issue that will need to be addressed not just as of the closing, but throughout the operational life of the investment. Regulatory changes may the increase cost and execution risk associated with the investment over time and could also trigger contractual disputes over cost allocation or claims that regulation is disproportionate or discriminatory.

– John Jenkins