Raytheon’s Strategic Pivot from Prime Time
Defense News officially confirmed a long-circulating industry rumor. Raytheon is done chasing SDA prime contracts. This represents a reversal from the company’s recent acquisition strategy, taking Raytheon off the table as Terran Orbital’s White Knight.
In November 2020, only 20 months after the formation of the Space Development Agency (SDA), and with prospective billion-dollar smallsat contracts hanging in the balance, Raytheon acquired Blue Canyon Technology (BCT) for $350 million. BCT, a 12-year-old startup founded by former Ball engineers to build star trackers, was EBITDA profitable with revenues of $50-100M. At the time, BCT was viewed as one of the early success stories of the (2010s) newspace revolution.
A year later, Raytheon acquired SEAKR Engineering, a Colorado-based satellite component manufacturer (RF, processing, storage, space electronics, and subsystems, but no buses), for an estimated 2-3x the purchase price of BCT. SEAKR also brought along highly coveted digital payload technology.
So why is Raytheon abandoning its pursuit of SDA prime contracts following a $250M award, 7-satellite award, and three-and-a-half years after spending more than $1B for two platform companies to pursue business?
Was it merely the fact that BCT specialized in cubesats, with less heritage on microsatellite class platforms, and SDA was looking for ESPA-Grande's (i.e., up to 700 kg vs. ~25 kg for a 16U cubesat)? To chase an SDA contract, Raytheon would need to mature the design for an all-new bus and compete against two dozen other vendors to win a coveted SDA contract.
More likely, Raytheon concluded that there is a better risk-adjusted return from selling picks-and-shovels (i.e., components and systems) than full-blown satellites. Both BCT and SEAKR have promising merchant component opportunities, but if Raytheon becomes a prime, many of BCT/SEAKR’s customers will come to perceive them (Raytheon) as a competitor. Better to just sell parts. And BCT continues to offer its cubesat/mircrosat product line.
It's the right call. We just hope Raytheon didn’t base its original acquisition strategy on the assumption of an SDA win. If they did, it’ll be a long road to generate an attractive return on Raytheon’s original investment. Another way to engineer a save would be to double down on the components business through M&A with the aim of attaining proprietary capabilities or scale advantage, especially in a world with fewer tier-twos than ever.
SOURCE: https://www.defenseone.com/business/2024/04/rtx-moves-away-competing-prime-space-contracts/396016/