The SPAC transaction in the defense and aerospace sector has exploded

By 2026, many early stage defense and aerospace companies had moved on from the traditional IPO fixation. Instead, they chose to merge with SPACs to list on the U.S. stock market. SPACs themselves have no physical business operations. They first complete the listing fundraising and then acquire private enterprises to help the target companies achieve listing.

Statistics show that this year, six defense, aerospace or satellite-related companies have officially announced SPAC merger transactions. Compared to only three transactions in the entire year of 2025, the transaction volume has doubled directly. These types of transactions account for about 10% of the total SPAC transaction volume in the market. There are also nine SPACs currently looking for defense and aerospace-related targets. These companies have a combined fund of $2.35 billion at their disposal, and there is a possibility of more transactions being finalized in the future. Ursa Major is a representative target in this wave of market trends. This company specializes in missiles and rocket propulsion systems and recently completed a SPAC transaction worth $2.3 billion.

Apart from Ursa Major, Quantum Space and Elroy Air also announced SPAC cooperation news in June this year. Quantum Space develops in-orbit service spacecraft and has received a government security project contract, with an additional financing of $88 million. Elroy Air has received a $46 million long-term order from the U.S. Army. The valuation in the private equity market has also risen, with Sierra Space completing financing in March this year, with its valuation increasing by more than 50% compared to before, reaching $8 billion.

In the traditional IPO process, companies have to deal with fluctuations in the market environment. However, the SPAC model allows for private negotiations on valuation and can finalize financing arrangements before going public, making the fundraising more certain. Many small and medium-sized defense and aerospace enterprises mainly rely on government contracts for their revenue sources, and the project development cycle is long with an unstable collection process. It is difficult for these enterprises to quickly achieve stable revenue and profits, failing to meet the performance standards of traditional IPOs. At the same time, this wave of concentrated IPOs has diverted market funds to large projects. Small enterprises choosing SPAC can avoid the competition for funds from large IPOs.

The defense and aerospace sector has been highly sought after by investors, directly related to the adjustment of the U.S. defense budget and changes in the geopolitical situation. The current U.S. government plans to boost the defense budget. The total defense spending is expected to go up from $901 billion in 2026 to $1.5 trillion in 2027. Overseas conflicts have consumed a large amount of ammunition reserves, requiring the replenishment of military equipment inventories. The demand for various new equipment purchases is constantly emerging. Changes in war and conflict patterns bring new opportunities, such as the growth in demand for unmanned aircraft, hypersonic equipment and satellite communication systems.

A large number of start-up companies have launched low-cost equipment solutions, attempting to seize government procurement orders from traditional military giants. After SpaceX went public, it also sparked interest among ordinary investors in the entire aerospace sector, and the market is willing to give such technology growth targets higher valuations. The Trump family has increased investment in defense and aerospace, with Donald Trump Jr. participating in multiple related project investments, and Eric Trump investing in the anti-drone company Space-Eyes. This company also plans to go public through a SPAC.

The SPAC listing brings convenience to enterprises, but for investors who purchase the related stocks, the risks cannot be ignored. During the SPAC merger process, the accompanying PIPE (Private Investment in Public Equity) private investment can easily lead to the dilution of the original shareholders' equity. Compared with traditional IPOs, the information disclosure and verification of SPAC mergers are more rigorous, and the protection mechanism for ordinary investors is relatively weak.

SPAC investors do not necessarily require the target company to have revenue or profits. As long as they see the technical prospects, they are willing to participate in the investment. This is also the core reason why many early military and aerospace enterprises can go public through SPAC. However, many aerospace stocks that completed SPAC listings have experienced a large decline in stock prices after listing. Companies like Rocket Lab have all experienced a situation where their stock prices dropped from their highs, and it took two years for their stock price trends to recover.